Business Debt Relief for Farmers and Agricultural Companies

Farmers and agribusinesses have faced numerous challenges over the past few years, from trade disputes and severe weather events to soaring input costs and volatile commodity prices. On top of all that, the COVID-19 pandemic disrupted supply chains and crushed demand for many agricultural products.

As a result, many farmers and ag companies have struggled financially. In fact, farm bankruptcies jumped 20% in 2020, marking the highest level since 2011 according to the American Farm Bureau Federation.

Fortunately, there are a few options for farmers and agribusinesses looking for debt relief and financial assistance during these difficult economic times. This article provides an overview of some of the main programs available.

USDA Farm Loans and Relief Programs

The U.S. Department of Agriculture (USDA) offers various direct and guaranteed loan programs to help farmers, ranchers and agricultural producers purchase farmland, equipment, livestock and cover operating expenses. When farmers fall behind on these loans, the USDA may be able to offer payment deferrals, loan restructuring or other options through its farm loan relief programs.

For example, in August 2022 President Biden signed the Inflation Reduction Act into law. This legislation included $3.1 billion to provide relief for distressed USDA Farm Service Agency (FSA) borrowers facing financial hardship.

So far, the USDA has used $1.3 billion from this funding to help over 35,000 producers through automatic and case-by-case assistance programs. This includes covering missed loan payments for qualifying borrowers and restructuring debts to help financially troubled farmers avoid foreclosure.

In addition to the recent Inflation Reduction Act funding, the USDA has other loan programs and services that may help provide financial relief for farmers, such as:

• Disaster Set-Aside Program: Allows farmers in designated disaster areas to skip annual installment payments and move them to the end of the loan repayment period.
• Loan Servicing Programs: Restructure debts by writing down principal balances, reducing interest rates, deferring payments or extending loan terms.
• Debt Settlement: Settle farm loan debts by accepting less than the full amount owed when borrowers have no reasonable ability to pay.

Eligibility criteria, debt relief options and application procedures vary across these USDA farm loan and relief programs. So farmers interested in assistance should contact their local FSA office to discuss their financial situation and options.

Chapter 12 Bankruptcy

Another potential option for farmers and agribusinesses facing unmanageable debts is to file for bankruptcy protection under Chapter 12. Enacted in 1986, Chapter 12 bankruptcy allows family farmers and fishermen to restructure finances and debts under court supervision.

Key features of Chapter 12 bankruptcy include:

• Only available to family farms and fishing operations with regular annual income.
• No absolute limit on the amount of debt eligible to file.
• More flexible than other bankruptcy chapters in allowing farmers to keep operating assets.
• Court confirmation of a 3-5 year debt repayment plan.
• Opportunity for debt discharge after completing all payments under the court-approved plan.

One main advantage of Chapter 12 over other bankruptcy options is that it allows farmers to keep running their business while settling debts under bankruptcy court protection. This can help financially distressed agricultural operations reorganize and regain profitability.

However, the complex bankruptcy process also has drawbacks like legal/administrative costs, damage to credit ratings, and losing control over certain business decisions to the court. So farmers should carefully weigh the pros and cons with legal counsel before pursuing Chapter 12 bankruptcy.

State Programs

Some states also offer financial assistance programs targeted specifically at farmers and rural small businesses. For instance, the California Infrastructure and Economic Development Bank (IBank) runs a Farm Loan Program through participating lenders.

This program supports direct loans to small California farms, with up to 90% guaranteed by the USDA Farm Service Agency. Over 200 jobs have been retained through these special farm loans.

Other states like New York, Vermont and Minnesota have funds to help dairy farmers or agriculture companies invest in improved production technologies and equipment. Some states offer special loans, grants or tax incentives to support beginning farmers, organic farming, value-added processing and other agricultural sectors.

So farmers and agribusinesses should check if their state has any programs to assist with loans, debt restructuring or modernization investments. State departments of agriculture, rural development councils or farm bureaus are good resources to contact.

Other Financial Strategies

Beyond government programs and bankruptcy, farmers do have some other financial management options to relieve business debts. For example:

• Refinancing: Taking out new lower interest loans to pay off more expensive existing debts.
• Restructuring & Consolidation: Renegotiating loan terms, payments and interest rates with creditors. Combining multiple loans into a single more manageable debt.
• Selling Assets: Downsizing equipment, land or other assets to pay off urgent debts is sometimes necessary.
• Adding Income Streams: Starting side business ventures like farm stores, corn mazes, hunting access fees or agritourism.
• Expense Cutting: Reducing discretionary spending and trimming production costs where feasible.

The best debt relief strategies depend on each individual farm’s financial situation, debts owed, collateral available, credit history and overall outlook. With persistently low commodity prices and rising production costs, many farmers will likely continue facing financial strains.

But between USDA relief programs, bankruptcy protection and state assistance, various options exist for agricultural producers to restructure debts and regain stable financial footing. Farmers in financial distress should seek help from legal, tax and financial advisors to develop customized plans matching their needs and circumstances