Next Generation Farmer Loan
Pennsylvania has a rich agricultural history. The work ethic and dedication to the land exhibited by our farmers has made agriculture Pennsylvania's number one industry. To ensure that our rich agricultural traditions are handed down to the next generation, the Commonwealth has developed the Next Generation Farmer Loan Program. The purpose of the program is to provide an effective means for federal-state-industry partnerships, whereby the public sector can assist beginning and first time farmers to purchase land, farm equipment, farm buildings and breeding livestock.

The program uses federal tax exempt mortgage financing to reduce a farmer's interest rate for capital purchases. The program may be used between a borrower and lender for a loan to make a direct purchase of farm and agricultural machinery and equipment or between a buyer and seller for a contract purchase. The tax exempt interest income to the lender or contract seller enables them to charge the borrower a lower interest rate, which is exempt from federal, state and county taxes.
 

Who Qualifies for The Next Generation Farmer Loan Program?
Borrowers must be a permanent resident of Pennsylvania and at least 18 years of age. The potential borrower must first meet a lenders' credit standards and document to the satisfaction of the lender that they will have access to adequate working capital, farm equipment and livestock, if appropriate. The owner must be the sole owner and principal of the project. The borrower must not have had any prior direct or indirect ownership interest in a substantial amount of land (a substantial amount of land in Chester County is defined as 19 acres).

Eligible borrowers may not have a net worth in excess of $500,000. For a partnership, the aggregate net worth of all partners may not exceed $1,000,000. In addition, the aggregate net worth of each partner may not exceed $500,000.
 

What are the Eligible Uses of the Funds?
Agricultural Land - Acquisition of land that is suitable for use in farming and which is or will be operated as a farm. Farming is defined as the cultivation of land for the production of agricultural crops, the raising of poultry, the production of eggs, the production of milk, the production of fruit and other horticultural crops, grazing, the production of livestock, aquaculture, hydroponics, and the production of forest products.

Agricultural Improvements - Any improvements, buildings, structures or fixtures suitable for use in farming which are located on agricultural land. The program will finance the purchase of new improvements on agricultural land, and used agricultural improvements only in situations in which:

The improvements are purchased in conjunction with agricultural land and used in the operation of a farm to be operated on the agricultural land being purchased; or a sufficient amount of qualified rehabilitation expenditures are incurred by the borrower with respect to the agricultural improvements within two years from the date of issue of the loan.
 

Depreciable Agricultural Property - Personal property suitable for use in farming for which an income tax deduction for depreciation is allowable in computing federal income tax under the Internal Revenue Code of 1986, as amended. Examples include but are not limited to, farm machinery and trucks.

Feeder livestock, seed feed, fertilizer, and other types of inventory or supplies do not qualify as depreciable agricultural property. The Program will finance the purchase of any new depreciable agricultural property, and used depreciable agricultural property if it is purchase in conjunction with agricultural and used in the operation of a farm to be operated on the agricultural land being purchased. The total loan proceeds allocated to the purchase price of used equipment may not exceed $62,500.

Note: No portion of the loan proceeds may be used for the purchase of a residence. The applicant must make a down payment or obtain conventional financing for the value of the residence.

Purchase from Related Persons - Funds can be used to purchase property from related persons. The IRS states that the following, among others, are deemed to be "related persons" of an individual: grandfather, grandmother, father, mother, brother, sister, child, grandchild, or spouse. In addition, a partnership and each of its partners (and their spouses and minor children) are related persons, as are an S corporation and each of its shareholders (and their spouses and minor children.) Related persons also includes certain related corporations and partnerships. It should be pointed out that the foregoing list is not exclusive. There are certain other entities and individuals that could also be considered related persons. It should also be noted that certain individuals are not related persons. For example, an aunt, uncle, nephew, niece, brother-in-law or sister-in-law would not be treated as a related person.

If loan proceeds are used to purchase property from a related person, the applicant must certify and provide supporting documentation that the purchase price of the property is at least equal to the market value of the project. The applicant must also certify that the seller will have no continuing financial interest in the project and will not be a principal user of the project, and will have no other direct or indirect ownership of the project.
 

How is the Funding Structured?
In using the program, a lending institution provides a tax-exempt mortgage to the borrower through the Chester County Industrial Development Authority (CCIDA). A loan agreement between the borrower and CCIDA is assigned to the bank, establishing the repayment of the loan. Interest earned by the bank is exempt from Federal and State taxes. The bank, in turn, passes on a lower interest rate to its borrower.

What is the Loan Term and Rate?
The rate and the term of the loan are established by the bank.

What is the Minimum and Maximum Size of the Mortgage?
There is no minimum size; the maximum loan amount is $450,000 per person; however, the total loan proceeds allocated to the purchase price of used equipment may not exceed $62,500.

What Are the Fees of CCIDA for This Loan?
Application Fee: $500
Closing Fee: 1/2% of the loan amount
Legal Fee: Based upon time required for each project; estimate of $2,000

What is the Application Procedure?
Companies wishing to apply for The Next Generation Farmer Loan Program should contact Sue Milshaw at 610-458-5700 x239 at the Chester County Industrial Development Authority to determine eligibility and obtain an application.

Applications must be submitted by the 1st of the month. CCIDA Board review will occur on the third Wednesday of each month. Following CCIDA approval, the application will be forwarded to the Board of Chester County Commissioners for their approval and then to the Pennsylvania Department of Community & Economic Development for their approval.
 

When Can the Project Construction or Acquisition Begin?
Project construction and/or acquisition cannot begin until approval has been received from the Chester County Industrial Development Authority. Deposits on real estate made prior to the approval are financable through the program if the acquisition of the real estate occurs after the approval.

NOTE: Applications are due on the 1st of each month. If you have any questions, contact Sue Milshaw at 610.458.5700.

< Return to Financing Services | Back to Top