March 17, 2000

Since expanding eligibility and modifying the Young Farmer and Rancher Loan Guaranty Program to make it more "user friendly" a little over a year ago, the Texas Agricultural Finance Authority has seen the number of applications pick up its pace.

"We’re seeing an increase. I have also done several now where I have been able to provide joint funds under the Young Farmer’s program, which is more of an operating capital and equipment loan program, and the Farm and Ranch Program, which is specifically set up to buy land for ag purposes, for the same applicant," said David Luttrell, the director of finance for the Texas Agricultural Finance Authority, which was created in 1987 as a public authority within the Texas Department of Agriculture.

A number of improvements in the program—including the increase to $250,000 in the maximum guaranteed loan limit—are a direct result of a formal recommendation by the Texas Farm Bureau’s Young Farmer and Rancher Advisory committee. Luttrell believes heightened interest in the program is due, more than anything else, to the increased limit. Also, the Authority now provides financial assistance through loan guarantees to eligible applicants who wish to enhance, as well as establish, a farm and/or ranch operation, or establish an agricultural-related business.

"That’s one of the biggest changes. The program was originally for a beginning farmer or rancher only. Now it has been opened up for an existing farmer, as an enhancement. That has made a big difference," Luttrell observed. "The application process has also been streamlined. The loan process now takes a maximum of 45 to 60 days. The board meets on the fourth Friday of every month. If an applicant can get a package together and submit it though a bank at the first of the month, it can be approved or rejected at that board meeting, assuming everything’s complete. We have the full application on our website (www.agr.state.tx.us), so you can pull it right off of there."

In order to be eligible for the Young Farmer and Rancher Loan Guaranty Program, an applicant must be a Texas resident who is at least 18 years old but younger than 40, and willing to comply with the application procedures prescribed by the program rules. An application, including supporting documentation and schedules as required by the Authority, must be completed by an applicant and submitted by the applicant’s commercial lender to TAFA staff in order to seek participation in the program and to determine an applicant’s eligibility.

Five considerations make up the criteria for approval of a loan guarantee. They are:

• The anticipated benefits from granting a loan guarantee to the eligible applicant, including both potential job creation and commercial benefits to the agricultural industry.

• The eligible applicant’s qualifications.

• The feasibility of the eligible applicant’s plans.

• Other repayment sources available to the eligible applicant.

• Any other factor or circumstance within statutory authority, and reasonably related to the goals and objectives of the Act.

Use of funds may be used to provide working capital for operating the farm and/or ranch including the lease of facilities and the purchase of machinery and equipment, or for any agriculture-related business purpose, including the purchase of real estate for the agricultural-related business, as identified in the plan. However, proceeds cannot be used to purchase farm and/or ranch land used exclusively for agricultural production purposes.

The Authority may provide a guarantee to an eligible applicant in an amount not to exceed the lesser of $250,000 or 90 percent of the total loan amount. Loans must be ascertained from a commercial lending institution chartered by the state or federal government, including a savings bank, a credit union, or a Farm Credit System institution.

Interest rates are determined by the lender and approved by the Authority. Luttrell said an eligible applicant and lender may apply for the Interest Reduction Program, which reimburses the applicant up to 3 percent of the fixed interest rate charged by the lender to an approved applicant.

Terms are determined on a case-by-case basis, with a maximum of 10 years, not to exceed the useful life of the assets being financed. Applicant must provide reasonable equity to the total project. The loan must be secured by a first lien on collateral sufficient to provide reasonable assurance of repayment.

A non-refundable application fee of $100 is due upon filing the application. Upon approval, the application fee will be considered a part of the guarantee fee. Any closing costs and legal fees are to be paid by the borrower at closing, and the borrower must pay a guarantee fee of 1 percent of the guaranteed amount within 10 days after closing.

To promote the Young Farmer and Rancher Loan Guaranty Program, Luttrell said the agency has been making a lot of presentations to young farmer groups and trying to get in front of as many lending institutions as possible.

"Unfortunately, there’s not a huge budget for a high-dollar promotion. We do a lot of one on one. We were at the Texas Farm Bureau annual meeting in Corpus Christi in November. We’ve sent direct mail pieces to banks in Texas, to make sure everybody’s aware that the program is out there and ready to be used. And we promote it through farm shows, like the B.I.G. (Blacklands Income Growth) Conference in Waco each January, which we have attended for the last three years. We have our materials in a booth, to promote TDA and what all TAFA offers. We also have regional offices for disseminating information."

Luttrell said recurring droughts and recent, low commodity prices have had no noticeable impact on the number of young producers applying for loans.