Providing federal loan guarantees for farmers who self-finance the sale of their land to a beginning or socially disadvantaged farmer
Two of the most significant barriers to starting a career in agriculture are access to land and capital. The Land Contract Guarantee Program helps farmers help one another by connecting experienced farmers looking to sell their farmland with beginning and minority farmers looking for property. This loan program connects experienced and beginning farmers to one another, and reduces the financial risk for retiring farmers who self-finance the sale of their land to a beginning or socially disadvantaged farmer by providing a federal guarantee.
Learn More About Land Contract Guarantees:
- Program Basics: Learn more about how this program works
- Eligibility: Find out who can utilize this program
- The Program in Action: Read success stories from those who have used this program
- How to Apply and Program Resources: Learn more about the application process and where to find more information
- Program History, Funding, and Farm Bill Changes: Learn about important policy changes and funding levels provided by the Farm Bill
The Land Contract Guarantee Program, administered by the U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA), provides federal loan guarantees to retiring farmers who self-finance the sale of their land to beginning farmers, farmers of color, and women farmers. For the purpose of this program USDA defines these farmer groups collectively as “socially disadvantaged” farmers or ranchers.
The program is designed to encourage private “land contract” sales by providing a degree of protection to the retiring farmer whose retirement savings is often in the land and farm itself. It provides the seller with a federal guarantee much like that available to commercial banks and other lenders. The Land Contract Guarantee Program is structured to provide the seller of the farm or ranch one of two choices, a:
- Prompt Payment Guarantee that covers up to the amount of three annual installments plus the cost of real estate taxes and insurance.
- Standard Guarantee plan that covers an amount equal to 90 percent of the outstanding principle of the loan provided the seller has a servicing agent.
For either option, the loan guarantee stays in effect for 10 years. The purchase price or appraised value of the farm or ranch that is the subject of the contract sale cannot be greater than $500,000. The buyer of the farm or ranch must contribute at least five percent as a down payment for the land.
Under the Prompt Payment Guarantee option, if the new farmer/buyer does not pay an annual installment due on the contract or pays only part of an installment, FSA provides the scheduled payment or the unpaid portion to the seller through an escrow agent after the seller unsuccessfully attempts collection. In that circumstance, the buyer would then try to restructure the debt and obtain an approved repayment plan.
Under the Standard Guarantee option, the seller is protecting him or herself against the possibility that the value of the farm may have sharply declined between the time the contract was entered and any default by the buyer.
To be eligible for a loan guarantee, the buyer of the farm or ranch must:
- Be a beginning or socially disadvantaged farmer or rancher.
- Have an acceptable credit history demonstrated by satisfactory debt repayment.
- Own or operate the farm or ranch when the contract is complete.
- Be unable to obtain sufficient credit elsewhere without a guarantee to finance actual needs at reasonable rates or terms.
Additionally, the seller must also meet eligibility criteria established by FSA. Contact your local FSA office for more information.
Since 2012 (when this program first launched nationwide), FSA has provided two loan guarantees: one in Wisconsin and one in Oregon. Together, these guarantees have financed the transfer of $342,950 in farmland real estate to beginning and socially disadvantaged farmers.
In, Wisconsin, the program helped a young farming couple purchase an existing dairy operation that was owned by a family member. They were able to secure a 10-year guarantee under the prompt payment provision, which allowed one generation of farmers to pass down a part of their farming operation to the next generation.
The latest news and analysis about Land Contract Guarantees and other loan programs can be found on NSAC’s blog, including via the following posts:
- Beginning Farmer Land Contract Guarantee Program Launches
- Beginning Farmer Land Contract Program to Launch in 2012
- FSA Proposes Expansion of Beginning Farmer and Rancher Land Contract Program
- More blog posts on credit, commodity, and crop insurance programs
NSAC developed the policy proposal for the Land Contract Guarantee program, and fought for its inclusion in the 2002 and 2008 Farm Bills. The 2002 Farm Bill established the Beginning Farmer and Rancher Land Contract program as a pilot program in 9 states, and the 2008 Farm Bill made the program permanent and available nationwide. The 2008 Farm Bill also added socially disadvantaged farmers as an eligible group for the loan guarantee program and added the standard asset guarantee option, with the stipulation that the seller obtains the services of a loan servicing agent. The 2018 Farm Bill continued the program without any additional changes.
The land contract guarantee program is funded out of the annual appropriation for guaranteed farm ownership loans. The farm bill authorized program level for guaranteed farm ownership loans is $3.5 billion, but in recent years Congress has appropriated enough funds to result in a program level of $2.75 billion. Sufficient funding therefore should be available from this overall appropriation for guaranteed farm ownership loans to cover all eligible land contract program proposals submitted.
Section 5005 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Section 310F of the Consolidated Farm and Rural Development Act of 1972, to be codified at 7 U.S.C. Section 1936.
Last updated in May 2019.