State Crafts Loan Package to "Save the Farm"

by Peak Positions

Original article appeared in the Traverse City Record Eagle

The Michigan state Legislature crafted an emergency loan package signed by Gov. Rick Snyder to aid fruit farmers who suffered threats to the viability of their farms from unprecedented warm spring temps.

Growers need to be aware that this extremely low interest emergency loan program can assist them with their cash flow needs until payments are received from the harvest of their 2013 crops.
Some of the terms and qualifications of the 2012 Fruit Freeze Disaster program are:

• 25 percent loss across the farm in the "major enterprises" or production loss of 50 percent on one crop for a farm.
• Losses certified by signed affidavit.
• 1 percent interest or the rate of the 5-year U.S. Treasury note plus .25 percent. On Aug. 6 the Treasury note rate was .59 percent.
• 5-year term, with interest only the first year and the principal paid over the last 4 years, or 25 percent per year.
• These are "qualified" loans meaning they must be backed by collateral.
• Loans have to be entered into by March 31, 2013. 

The maximum producer loan is $400,000, or the value of the crop loss, whichever is less, minus the value of insurance proceeds. If crop insurance was available, but not purchased, the loan is reduced 30 percent or $100,000 whichever is less. 

The program also includes emergency loan funding for agricultural processors and retailers. Agricultural processors and agricultural retailers are experiencing income reductions due to a lack of raw products to process, or reduced sales because farmer's cash flows have been reduced due to freezes and drought. The maximum loan amount is the lesser of $800,000 per facility or $1 million for those with multiple locations.
An agricultural processor is defined as, "A person that is engaged and intending to remain engaged in this state in an agricultural business of buying, exchanging, processing, storing, or selling farm produce that suffered a 50 percent or greater loss in volume of one commodity when compared with the average volume of that commodity that business handled in the prior three years."

A retailer is defined as a "person in the business of making retail sales directly to farmers with 75 percent or more of the person's gross retail sales volume exempted from sales tax under section 4a )1) (e) of the general sales tax act that suffered a 50 percent or greater reduction in gross retail sales volume subject to exemption under section 4a )1) (e) of the general sales tax act ... when compared with the person's average retail sales volume subject to that exemption in the prior three years." The reduction in sales must be directly attributed to an agricultural disaster occurring after Jan. 1, 2012. 

This is not a loan guarantee program or a grant to offset production losses. It is a state supported special term operational loan for "qualified" fruit farm producer participants. Each participating agricultural lender is taking the credit risk and will use their own underwriting standards to determine each applicant's credit worthiness. The $15 million dollars authorized to be contributed by the state is to pay the lenders for administrative costs and loan origination fees. Greenstone Farm Credit Services and Huntington Bank plan to be the participating lenders.

The state Legislature has not yet appropriated the $15 million to fund this program. The funding is expected early this fall. Subsequently, the loan application form and application instructions should be available.

Potential participants are asked to be patient until all of the details of the program are made available. Now is the time to be getting your financial records and documents in order so you are ready to apply. 

For more information, please contact the Michigan State University Extension District Farm Management Educator.