Lindsey said the dry soil beneath her feet in Hereford Township offers a welcome change from wetter Oley Valley property the couple had leased for the first 11 seasons of operating their business, Root Mass Farm.
While the farms, both in Berks County, are about a half hour’s drive apart, both afford a similar commute to Philadelphia (a little more than an hour), where Shapiro and Jefferies have established a presence at farmers markets.
The 12 acres they ultimately purchased, with a home for their family as well as a rental property, from like-minded farmers next door offered an ideal situation. But the deal almost fell through.
“The mortgage for my farm was jointly financed by the FSA (Farm Service Agency) and Farm Credit,” said Shapiro, who also works as the Farm Bill campaign organizer for Pasa Sustainable Agriculture.
“We tried to go through a series of traditional lenders that we had had relationships with, and they wouldn’t touch us. They were like, ‘Your debt-to-income ratio is going to be what? No, no chance.’ So, we needed to work with lenders that kind of understood the unique financials of operating a farm business.”
Farm Credit was initially going to be the sole lender, Shapiro said, because the agency offered more agility in an aggressive marketplace.
“Working with the FSA can be much slower,” she said. “It’s harder to do that in a really competitive real estate market.”
With Farm Credit — the couple already had an established relationship with the lender through an equipment loan — offering initial preapproval, Shapiro and Jefferies were able to make a good-faith offer. Terms were set for a standard 30-year residential mortgage with 20% down.
But an appraisal came back that the value of the land was worth more than the buildings on the property, which, under the rules of Farm Credit, made it a commercial rather than a residential loan, Shapiro said. The new terms were less favorable, and for two young farmers from the suburbs, a potential deal breaker.
The loan period shrank from a 30-year to a 25-year mortgage, the interest rate climbed from 4 ½% to 5 ¾%, and monthly payments escalated from around $1,500 to $2,100. The required down payment also increased.
“That felt like something that we weren’t sure we would be able to actually pull off,” she said.
That’s when they went to the Farm Service Agency.
“But the FSA said, ‘You’ve already been preapproved by Farm Credit. So we can’t really take on this mortgage whole hog because we are not the lender of last resort. Another lender has already said yes. So we couldn’t just go through FSA at that point. We had to pursue this joint financing thing,” Shapiro said.
What made the arrangement work was Farm Credit’s assurances to FSA that the deal had its blessing.
“There was like a lot of delicate sort of relationship management where the FSA didn’t want to be seen as poaching a customer from Farm Credit,” she said.
Ultimately, the couple was able to put 10% down, FSA put up 50% and Farm Credit 40% on what is now a 40-year-mortgage. While the couple still must pay the high commercial property interest rate to Farm Credit, it’s offset by the 2 ½% rate received from the FSA portion of the loan, settling out to a manageable monthly payment.
Farm Credit has the first lien on the property, and farm equipment served as the FSA portion of collateral for the loan.
“I don’t know why that mechanism is not more common,” Shapiro said. “I haven’t met too many other folks that have a jointly financed mortgage.
“It was a good situation for us, and I think part of it is just a matter of outreach on FSA’s part.”
It probably boils down to limited resources, she said.
“I don’t think there is enough staff capacity and emphasis put on reaching out to and educating young and beginning farmers about all the opportunities that are available through the FSA,” Shapiro said. “I think there are some really beneficial existing loan products, but people don’t necessarily have a good sense of what’s available through FSA. And it’s confusing, because they’re supposed to be the lender of last resort, and it’s hard to know what that means. You need to be denied by traditional lenders, I think, in order to get financing through FSA.”
More clarity would be tremendously helpful, she said.
Source: lancasterfarming.com
Categories: Pennsylvania, Business, Equipment & Machinery, Government & Policy