Expand Access to Credit For Farm Businesses

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Expand Access to Credit For Farm Businesses

Farming is a profession that relies heavily on credit – not just when a farmer starts their business but at the beginning of every season, when they must pay for their seed, feed, and other inputs. Depending on their business, the farmer may not see return on their investment for many months, until it is time for harvest. Reliable access to credit on good terms is critical to farmer livelihoods. Rural economic downturns and overall bank consolidation has made credit access more challenging for most producers; for young or beginning farmers, farmers of color, and other socially disadvantaged farmers, credit access has long been unreliable.

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Commercial banks offer the majority of loans to farmers, but as banks have become more risk-averse, they have become less willing to lend to farmers, particularly those who have fewer assets or who are just starting out. The two other primary sources of farm credit are Farm Credit and the USDA Farm Service Agency (FSA), and much about farm credit is determined in the credit title of the federal farm bill.

To expand the options for available farm loans, state legislatures have developed and funded a variety of farm lending programs, including direct farm loans, Aggie Bonds that offer lower rates to beginning farmers than a commercial farm loan, and other specialized loan and finance programs. Some states have created farm loan guarantee programs backed by small bond issues; local lenders receive up to 85 percent guarantee of principal and interest. Similarly, loan participation programs in some states help low-equity farmers and ranchers obtain farm loans, as the state provides a partial guarantee of repayment by purchasing part of the loan from the local lender.

Finally, beginning during the 1980s farm crisis, a number of farm states created programs to assist farmers who were suddenly struggling with debt due to inflation and a drop in land values, which were unforeseen factors entirely out of their control. Many farmers today are finding themselves in debt for similar reasons; state-financed debt mediation programs can help.

Policy Priorities

  1. Federal: Reform and invest in the rural credit system. Strategic reforms, including requiring the Farm Credit System to place a portion of profits in a community mandate fund for grants and loans to support rural small business, midtier food system businesses and young, beginning, or historically underserved farmers and ranchers, are critical.

  2. State: Develop or expand Aggie Bonds, guaranteed loans, direct loans, loan participation programs, and similar initiatives.

  3. State: Assist farmers in credit mediation and addressing ongoing debt challenges.

State Examples