PDA's Next Generation Farmer Loan

Today, there are two times as many farmers over 65 as under 35 in Pennsylvania. In addition, it is estimated that one-quarter of Pennsylvania's farms will change hands in the next decade. 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.

How the Program Works

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 is Eligible?

Credit Quality - The applicant must meet the lender's credit standards.

Residency - The applicant must be a permanent resident of Pennsylvania when the loan is issued.

Age - The applicant must be at least eighteen (18) years of age when the loan application is submitted.

Capital Requirements - The applicant will be required to document to the satisfaction of the lender that they will have access to adequate working capital, farm equipment and livestock, if appropriate.

Ownership and Active Participation - The owner must be the sole owner and principal user of the project.

Prior Ownership - The applicant must not have had any prior ownership interest in a substantial amount of land. A substantial amount of land is a parcel, which exceeds 30% of the median farm size in the county in which the land is located, or which had at any time during ownership a fair market value in excess of $125,000.

What Can I Use the Money for?

Agricultural Land - Land located in the Commonwealth of Pennsylvania that is suitable for use in farming and which is or will be operated as a farm.

Agricultural Improvements - Any improvements, buildings, structures or fixtures suitable for use in farming which are located on agricultural land.

Depreciable Property - Property suitable for use in farming such as farm machinery and trucks, for which an income tax deduction for depreciation is allowable.

Purchase from Related Persons - Funds can be used to purchase property from related persons as long as that purchase price is at least equal to the market value of the property and the seller will have no continuing financial interest in it, which means having no direct or indirect ownership and they will not be the principal user of the project.

How Does the Program Work?

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 a 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.

Fees associated with the program will vary between lenders and IDA's, and are negotiated independent of the Commonwealth Departments. The maximum loan amount is $250,000 per person; however, the total loan proceeds allocated to the purchase price of used equipment may not exceed $62,500. All loan terms and credit decisions are made by the lender and contract seller. To qualify for this Program, a borrower's net worth cannot exceed $400,000 if filing as an individual or $800,000 as a partnership.

Click here to learn more about the Pennsylvania Department of Agriculture's Next Generation Farmer Program.