Last week, Congressman Bill Owens introduced legislation that aims to expand credit for family farmers in Upstate New York. H.R. 6057, the Farm Credit Expansion Act, would expand the range of business structures that qualify for loans through the Farm Service Agency (FSA), ensuring more family farms are eligible for a wider flow of credit during economically challenging times when they need it the most.
"The economic downturn has caused many farm families to suffer through one of the most challenging periods in decades," said Owens. "As a result, the balance sheets of millions of farmers are considerably weaker, making access to loan guarantees and direct loans from the FSA critical. I believe this bill corrects this issue, ensuring farmers continue to play a large role in the economic development of our area."
Two types of business structures that are increasingly common among family farms do not currently qualify for loans through the FSA. Today many family farms have both a farm ownership LLC and farm operating LLC to facilitate ownership by multiple family members. This is typically done to facilitate the intergenerational transfer of a farm business and for liability protection. However, because the operator of the farm (the operating LLC) does not own the farm (farm ownership LLC), the farm is not eligible for a loan.
"The more opportunity we provide for our local agriculture leaders, the better chance our community has at a complete economic recovery," said Owens. "We have an abundance of potential here in Upstate New York, but that potential will go to waste if we are unable to support our farmers."
Farms operating with an embedded entity structure are also currently ineligible for an FSA guarantee. An embedded entity occurs when one entity is owned wholly or partly by another entity. This embedded entity situation is occurring more frequently as more farmers complete estate planning.
For example, Joe and Jane Farmer may decide to transfer their individual ownership interests in Farm Operating, LLC to Joe Farmer Revocable Trust and Jane Farmer Revocable Trust per their estate plan. However, once the trusts own the LLC, the LLC is no longer eligible for a FSA guarantee although the farm operation has not fundamentally changed.