DDA loan program aimed at young farmers
DOVER, Del. — According to the USDA, only 8 percent of all farm producers were younger than 35 years of age in 2017; conversely, more than one-third of all farmers — 34 percent — were 65 years of age or older.
The USDA also indicated that “the average age of all U.S. farm producers in 2017 was 57.5 years, up 1.2 years from 2012, continuing a long-term trend of aging in the U.S. producer population. Producers also tend to be experienced; they had been on their current farm an average of 21.3 years.”
In Delaware, the Department of Agriculture operates its Young Farmer Loan Program to help provide financing to young farmers; this program was established in 2011.
“The Young Farmer Loan Program provides 30-year mortgages at 0% interest for qualified farmers to purchase farmland,” said Jimmy Kroon, administrator of the department’s Aglands Preservation and Planning Section. “To qualify, a young farmer must be a Delaware citizen between 18 to 40 years old, have more than three years farming experience, and less than $300,000 in net worth. Joint applications are allowed if all parties qualify on their own.”
This program not only helps provide financing to young farmers today, but it also preserves farmland for future generations.
“The farm must be located in Delaware and have at least 15 acres of cropland,” Kroon continued. “It can’t be enrolled in a conservation easement (we place an agricultural easement on the land in exchange for the mortgage). And it must be at least half of the size of any land the farmer already owns. (If they own 50 acres, then they need to be buying at least 25 acres.)
“Our maximum loan is 70 percent of the development rights value of the land,” said Kroon. “We pay for this appraisal, but it tends to equal 50 percent of the fair market purchase price of the land. The applicant must secure a primary loan for the rest of the purchase, usually from a commercial lender. We also subordinate our loan so they can pay the commercial loan first, then pay our loan back when the first loan is paid off (usually, years 20-30).”
One of the additional benefits in participating in this program is that the real estate transfer taxes are waived for the value of the land purchases.
A variety of farmers have participated in the Young Farmers Program.
“We see many types of farmers applying for our loans,” Kroon said. He stated that farmers include those that grow row crops, vegetables, livestock, chickens, and organic products, among other agricultural pursuits.
Because this program only focuses on land purchases, Kroon said that participating farmers need to consider other aspects of their ag operations.
“Land purchase is not the only expense in starting a farm, so the farmer needs to consider what other expenses need to be covered — equipment, buildings, irrigation, other investments, energy, seed, pest control, labor, etc. — and the cash flow of when expenses are incurred versus when income is generated,” Kroon said. “My biggest recommendation is to create a business plan for the farm, which will outline income and costs and determine if enough income will be earned to cover expenses, pay themselves, and repay their loans. We also require the applicant submit a farm business plan with their application.”
In its first 10 years, the program provided 37 loans to young farmers totaling $8.4 million and preserved 2,858 acres; the average loan was $227,310 overall and $2,943 per acre, according to the Delaware Department of Agriculture.
One of the participants in the Young Farmer Loan Program is Jonathan Walton. He raises poultry at Walton Farms in Georgetown, Del. Through the program, he purchased and preserved 113 acres.
“The loan program worked well for me,” he said. “The funds were used as a down payment on the land. The fact that the loan is interest-free is helpful.”
Though there are major benefits to participating in the Young Farmer Loan Program, Walton noted there may be reasons why some farmers don’t apply for funding through the program.
One reason involves timing. Typically, a successful application is reviewed and approved within six months.
“The program can take some time to go through,” Walton said. “For many, buying land is time-sensitive. Sellers aren’t always willing to wait for loan approvals.”
Reluctance in sharing information about their business could be another reason young farmers don’t apply, Walton added.
“Some farmers don’t want the state in their business,” he said. “Some farmers don’t want to disclose all of the information required to get a loan.”
More information on the Young Farmer Loan Program can be found at https://agriculture.delaware.gov/agland-preservation-planning/young-farmers-program/.