BEGINNING FARMER LOAN PROGRAM 12:21
1
ARTICLE 12:21
BEGINNING FARMER LOAN PROGRAM
Chapter
12:21:01 Beginning farmer loan program.
CHAPTER 12:21:01
BEGINNING FARMER LOAN PROGRAM
Section
12:21:01:01 Definitions.
12:21:01:02 Assets and liabilities.
12:21:01:03 Contents of application.
12:21:01:04 Net worth requirements.
12:21:01:05 Procedure for informal settlements in contested cases.
12:21:01:06 Eligibility.
BEGINNING FARMER LOAN PROGRAM 12:21
2 12:21:01:07 Maximums and minimums.
12:21:01:08 Limitations on improvements and depreciable property.
12:21:01:09 Loan requirements.
12:21:01:10 Availability of books and records.
12:21:01:11 South Dakota beginning farmer bond program.
12:21:01:12 Application procedures.
12:21:01:13 Issuance of bond.
12:21:01:14 Priority of applications.
12:21:01:15 Procedures following bond issuance.
12:21:01:16 Assignment of loans by participating lenders.
12:21:01:17 Assignment of loans by bond purchasers.
12:21:01:18 Assumption of loans, substitution of collateral, and transfer of property.
12:21:01:19 Right to audit.
BEGINNING FARMER LOAN PROGRAM 12:21
3 12:21:01:01. Definitions. Terms defined in SDCL 1-16E-31-16B-1 have the same meaning
when used in this article. In addition, terms used in this article mean:
(1) "Agricultural improvements," any improvements, buildings, structures, or fixtures
suitable for use in farming which are located on agricultural land, including the single-family
dwelling located on agricultural land that is or will be occupied by the beginning farmer and any
structure attached to or incidental to the use of the building;
(2) "Agricultural land," land that is suitable for use in farming and is or will be operated as a
farm;
(3) “Authority,” the South Dakota Economic Development Finance Authority;
(4) “Board,” the board of directors of the South Dakota Economic Development Finance
Authority.
(35) "Bond purchaser," any individual, corporation, government or governmental subdivision
or agency, business trust, estate, trust, partnership or association, or any other legal entity, other than
a participating lender, that purchases an authority bond under the beginning farmer bond program in
connection with a contract sale or loan to the beginning farmer;
(6) “Commissioner,” the Commissioner of the Governor’s Office of Economic Development;
(47) "Depreciable agricultural property," personal property suitable for use in farming for
which an income tax deduction for depreciation or cost recovery is allowable in computing federal
income tax under § 144(11)(B) of the Internal Revenue Code as amended to July 1, 2008May 1,
BEGINNING FARMER LOAN PROGRAM 12:21
4 2023, and which is qualified for financing with tax-exempt bonds pursuant to § 144 of the Internal
Revenue Code, as amended to July 1, 2008 in effect on December 31, 2024;
(58) "Eligible applicant," an individual who is a first-time farmer, as defined in § 147(c)(2)(c)
of the Internal Revenue Code, as amended to July 1, 2008 in effect on December 31, 2024, who
satisfies all of the criteria contained in SDCL 1-16E-3(2A)1-16B-1(3) and this article relating to
recipient eligibility, and who operates or will operate a farm;
(6) "Executive director, the executive director of the Value Added Finance Authority;
(79) "Farm," a farming enterprise which is recognized in the community as a farm rather than
a rural residence;
(810) "Net worth," total assets minus total liabilities as determined in accordance with
generally accepted accounting principles with exceptions and exemptions reasonably related to an
equitable determination of the beginning farmer's net worth;
(911) "Participating lender," any lender, as defined in SDCL 1-16E-31-16B-1(10), that
purchases an authority bond under the beginning farmer bond program;
(1012) "Program," the beginning farmer bond program;
(1113) "Project," a description of the intended use of the loan proceeds;
(1214) "Qualified purposes," agricultural land and depreciable agricultural property.
BEGINNING FARMER LOAN PROGRAM 12:21
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Source: 22 SDR 97, effective January 22, 1996; 23 SDR 91, effective December 9, 1996; 35
SDR 67, effective September 30, 2008; SL 2019, ch 235, § 37 and 38, effective April 14, 2019.
General Authority: SDCL 1-16E-241-16B-70.
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
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6 12:21:01:02. Assets and liabilities. For purposes of this chapter total assets include cash,
crops, or feed on hand, livestock held for sale, breeding stock, marketable bonds and securities,
securities not readily marketable, accounts receivable, notes receivable, cash invested in growing
crops, net cash value of life insurance, machinery, equipment, cars and trucks, farm and other real
estate including life estates and personal residence, value or beneficial interest in a trust, government
payments or grants, and other assets. Total assets do not include items used for personal, family, or
household purposes by the applicant; but in no event may any property be excluded, to the extent a
deduction for depreciation is allowable for federal income tax purposes. All assets shall be valued
at fair market value by the participating lender. Fair market value is what a willing buyer would pay
a willing seller in the locality. A deduction of 10 percent may be made from fair market value of
farm and other real estate.
Total liabilities include accounts payable, notes or other indebtedness owed to any source,
taxes, rent, amount owed on real estate contracts or real estate mortgages, judgments, accrued
interest payable, and any other liabilities. Liabilities shall be determined through the use of generally
accepted accounting principles.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
Cross-Reference: Accounting principles, § 20:37:11:08.
BEGINNING FARMER LOAN PROGRAM 12:21
7 12:21:01:03. Contents of application. An applicant for a beginning farmer loan must apply
for the loan on a form provided by the finance authority. The application must include the following:
the applicant's name, address, credit data, a description of the anticipated use of loan proceeds, the
amount of the loan and the applicant's down payment, if any, and proof of compliance with net worth
requirements in § 12:21:01:04. An application is complete when all documents needed to approve a
loan are submitted.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
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8 12:21:01:04. Net worth requirements. To qualify for a loan under this chapter, the
beginning farmerapplicant must meet the net worth requirements as established by the Value Added
Finance Authority and as provided in this sectionset by the board. The board shall set and
periodically review a policy for minimum and maximum net worth eligibility requirements. The
board may include in its policy annual adjustments to such requirements to account for inflation or
other factors reasonably affecting beginning farmers’ net worth.For the individual, the aggregate net
worth of the individual and the individual's spouse and minor children may not exceed $400,000.
However, the authority may increase or decrease the net worth requirement by not more than
$100,000 if the resulting maximum net worth requirement for the individual and the individual's
spouse and minor children does not exceed $500,000 and is not less than $300,000. The board shall
set and periodically review a policy for minimum and maximum net worth eligibility requirements.
The board may include in its policy annual adjustments to such requirements to account for inflation
or other factors reasonably affecting beginning farmers’ net worth.
The authority may increase or decrease the net worth requirement not more than once in 12
consecutive months.
The policy adopted by the board with respect to net worth requirements shall be posted on the
authority’s website.
Source: 22 SDR 97, effective January 22, 1996; 26 SDR 169, effective June 27, 2000; 35
SDR 67, effective September 30, 2008; 37 SDR 111, effective December 8, 2010.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(1); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
9 12:21:01:05. Procedure for informal settlements in contested cases. Unless precluded by
statute, a dispute over rules of the authority that might otherwise result in contested case proceedings
may be settled by an informal settlement negotiated by the executive director, which is subject to
ratification by the authority board and by the parties contesting the rule in question. The settlement
shall be expressed in a written stipulation representing an informed mutual consent.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(1); 1-16B-57
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10 12:21:01:06. Eligibility. To be eligible for assistance under this chapter, the first-time farmer
applicant must meet the following requirements:
(1) The first-time farmerapplicant must be a resident of South Dakota at the time the bond is
issued to finance the loan and must be at least 18 years of age;
(2) The first-time farmer applicant must documentdemonstrate to the lender and the authority
sufficient training and experience for the anticipated farm operations;
(3) The first-time farmer applicant must, as a condition of loan closing, demonstrate to the
satisfaction of the lender and the authority access as needed to working capital, farm machinery,
livestock, and agricultural land;
(4) Individuals must be first-time farmers regardless of the purpose of the loan as defined in
§ 147(C) of the Internal Revenue CodeThe applicant must be a first time farmer as defined in §
147(c)(2)(C) of the Internal Revenue Code, as amended to July 1, 2008 in effect on December 31,
2024;
(5) The agricultural land and agricultural improvements may be used for farming only by the
individualapplicant, the individual'sapplicant’s spouse, the individual's minor children, or any of
them or the applicant’s minor children;
(6) The first-time farmer applicant must meet the net worth requirements as describedset out
in § 12:21:01:04;
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11 (7) The first-time farmerapplicant must meet the requirements of §267(a), (b), and (c)(4)
147(c)(2)(G) and § 144(a) of the Internal Revenue Code, as amended to July 1, 2008in effect on
December 31, 2024, concerning related persons.
Source: 22 SDR 97, effective January 22, 1996; 23 SDR 91, effective December 9, 1996; 35
SDR 67, effective September 30, 2008.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
12 12:21:01:07. Maximums and minimums. Aggregate Financing financing to an eligible
applicant under the program may not exceed $600,000$649,000 plus an adjustment for inflation
using the methodology in § 147(c)(2)(H) of the Internal Revenue Code, as in effect on December
31, 2024, to an individual beginning farmer participating in the program.
Source: 22 SDR 97, effective January 22, 1996; 35 SDR 67, effective September 30, 2008;
37 SDR 111, effective December 8, 2010.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
13 12:21:01:08. Limitations on improvements and depreciable property. Agricultural
improvements and agricultural depreciable property that are to become a fixture or an integral part
of real estate may be financed by the authority only if the beginning farmer owns the real estate on
which the property or improvement will be located and the real estate is less than thirty percent of
the median size farm in the county of residence or if the beginning farmer has a lease to use the real
estate for a term at least as long as the loan remains outstanding.
Source: 22 SDR 97, effective January 22, 1996; 35 SDR 67, effective September 30, 2008.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
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14 12:21:01:09. Loan requirements. The following are requirements for a loan under the
beginning farmer bond program:
(1) The authority may take security for a loan in the form of a promissory note, security
agreement, first mortgage, or similar agreement; and
(2) A loan may not be assumed and any interest in agricultural land, agricultural
improvements, or agricultural depreciable property may not be leased, sold, exchanged, used as a
trade-in, used on an equipment-for-hire basis, or otherwise conveyed without the prior written
consent of the authority. The authority may not consent to an assumption of its loan or the
conveyance of property subject to its mortgage or security agreement unless the purchaser of the
property is an eligible applicant for an authority loan, and then only if the purchaser of the property
financed by the loan is an eligible applicant for the program. Any change in collateral for the loan
in conjunction with an assumption, including the disposition of the property subject to a mortgage
or security agreement, must be approved by the authority.
(3) The beginning farmer, bond purchaser, or lender must submit to the authority a
nonrefundable $100 fee with the application. A loan fee equal to 1.5 percent of the amount of the
bond, but not less than $500, must be submitted by the beginning farmer, bond purchaser, or lender
at loan closing, The loan fee may be financed with bond proceeds.
Source: 22 SDR 97, effective January 22, 1996; 29 SDR 135, effective April 13, 2003.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-7(18).1-16B-1(3); 1-16B-57
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15 12:21:01:10. Availability of books and records. Participating lenders shall maintain books
and records setting forth payments received and disbursements made pursuant to all authority loans.
The participating lender's books and records must be available for examination by the authority or
its agent.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(1); 1-16B-57
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16 12:21:01:11. South Dakota beginning farmer bond Structure of program. The beginning
farmer bond program allows beginning farmers to obtain lower interest rate loans for qualified
purposes by obtaining loan funds from the proceeds of a tax exempt bond issued by the authority
and purchased by the lender. The authority shall enter into a loan agreement with the beginning
farmer and assign that loan to the lender. At the same time, the authority shall issue a tax-exempt
bond in the amount of the loan and the lender shall purchase that bond, which is used to fund the
loan assigned to the lender. The only security for the lender is the underlying security on the assigned
loan.
The program also allows a bond purchaser to receive tax-exempt interest for a direct loan or
contract sale made to a beginning farmers. The bond purchaser, after arranging the loan or sales
contract, shall obtain from the authority a federal tax-exempt bond in the amount of the loan or the
unpaid balance on the sales contract. In the case of a loan, the authority shall lend the amount paid
by the bond purchaser for the bond to the beginning farmer and assign the loan and its collateral to
the bond purchaser as security for the bond. In the case of a contract sale, the authority shall enter
into the contract with the bond purchaser who will receive the bond as evidence of the authority's
obligations under the contract. The authority shall then assign the authority's right, title, and interest
in the contract to the beginning farmer who shall assume the payment obligations of the authority
under the contract.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
Cross-Reference: Authority bonds not state or subdivision obligation, SDCL 1-16E-11.
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17 12:21:01:12. Application procedures. After identifying a lender and receiving the lender’s
approval, The the beginning farmerapplicant may apply for an authority loan with that lender on
forms provided by the authority for an authority loan with any lender. The authority shall assign the
approved loan to that lender. Authority loan eligibility is determined by the requirements of SDCL
chapter 1-16E and this article. If a beginning farmer meets the loan eligibility requirements in
§ 12:21:01:13, the decision on whether to enter into the loan agreement is between the beginning
farmer and the lender. Prior to application to the authority, the applicant and lender They must agree
on terms of the loan, such as including interest rates, length of loan, down payment, service fees,
origination charges, and repayment schedule. The loan terms may be no more onerous than those
charged to similar customers for similar loans, taking into account the tax-exempt nature of the
interest on the loan.
Following completion of the loan application by the beginning farmer and approval by the
lender, the loan application must be submitted to the authority for its review and approval. The
authority's review shall be based on the requirements of SDCL chapter 1-16B and this article, and
include whether:
(1) The loan applicant is a qualified beginning farmer;
(2) The loan proceeds will be used for a qualified purpose by a qualified borrower under
SDCL chapter 1-16E1-16B, this article, and §§ 141 and 146 of the Internal Revenue Code, as
amended to July 1, 2008 in effect on December 31, 2024, relating to private activity bonds;
(3) The terms of the loan comply with this article; and
(4) The lender meets the definition of a participating lender or bond purchaser.
BEGINNING FARMER LOAN PROGRAM 12:21
18 As part of the review, the authority and lender may require the beginning farmer to submit
appraisals on part or all of the property being financed by the loan or to submit other documents and
information necessary to complete the review of the loan application.
Following the authority’s approval and issuance of the bond, the authority shall enter into a
loan agreement with the beginning farmer and then assign the loan to the lender. The authority may
charge fees as needed to defray its costs for processing the loan and bond.
Source: 22 SDR 97, effective January 22, 1996; 23 SDR 91, effective December 9, 1996; 35
SDR 67, effective September 30, 2008.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
Cross-Reference: Authority bonds not state or subdivision obligation, SDCL 1-16E-11.
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19 12:21:01:13. Issuance of bond. The authority may not issue a bond for the purpose of
financing a project for a specific beginning farmer unless, before its issuance, the authority has
conducted a public hearing conforming to the applicable requirements of § 147(f)(2)(B) of the
United States Internal Revenue Code of 1986 as amended to July 1, 2008, as in effect on December
31, 2024. Upon receipt of a completed application and declaration of official intent to proceed with
the issuance of the bond by the authority, the executive directorcommissioner shall set a date, time,
and place for the hearing. The executive director commissioner shall publish notice of hearing at
least 14 7 days before the date of the hearing in a newspaper of general circulation available to
residents in the county where the project is located. The notice shall include the date, time, and place
of the hearing, the means by which interested parties may participate electronically, the name of the
beginning farmer, and a general description of the project. , and the right of individuals to request a
local hearing. The hearing shall be held at the location stated in the notice unless, by the time
scheduled for the hearing, the authority receives a written request that a local hearing be held.
If a local hearing is requested, the authority may cancel the previously scheduled hearing. The
executive director commissioner shall set a date, time, and place for a local hearing and publish
notice of the hearing in the local area as provided in this section. The date, time, and place for the
local hearing must be reasonably convenient to persons affected by the project. Public hearings may
be conducted by a staff member, a board member of the authority, an appointee or employee of the
authority, or another qualified hearing officer. The commissioner shall provide a means by which
interested party may participate electronically, including by telephone or video conference.
The authority may not issue a bond for the purpose of financing a project by a specific
beginning farmer applicant unless, before the issuance, the Governor or another elected official of
the state who is designated by the Governor, approves the issuance of the bond. Following the public
BEGINNING FARMER LOAN PROGRAM 12:21
20 hearing, the authority shall send to the Governor's office, or the office of the designated official, a
statement describing each bond or series of bonds which it proposes to issue, along with a summary
of the public comments received.
Following approval of the loan by the authority and upon completion of a public hearing and
approval of the bond issuance by the Governor or another designated state official, the authority
shall issue a bond, to be purchased by the lender, in the amount and fitting the terms of the loan to
the beginning farmer. The principal and interest on the bond is a limited obligation payable solely
out of the revenue derived from the loan to the beginning farmer and the underlying collateral or
other security furnished by or on behalf of the beginning farmer. The principal and interest on the
bond does not constitute an indebtedness of the authority or a charge against its general credit or
general fund.
Source: 22 SDR 97, effective January 22, 1996; 23 SDR 91, effective December 9, 1996; 35
SDR 67, effective September 30, 2008.
General Authority: SDCL 1-16E-241-16B-70.
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
Cross-Reference: Authority bonds not state or subdivision obligation, SDCL 1-16E-11.
BEGINNING FARMER LOAN PROGRAM 12:21
21 12:21:01:14. Priority of applications. The authority shall process applications on a first-
come, first-served basis, based on the receipt of a complete application.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
22 12:21:01:15. Procedures following bond issuance. No bond proceeds may be used for an
unqualified purpose or by an unqualified user. Following disbursement of the bond proceeds, the
authority may require the lender and the beginning farmer to certify to the authority that the proceeds
were used by a qualified beginning farmer for a qualified purpose.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
Cross-Reference: Eligibility, § 12:21:01:07.
BEGINNING FARMER LOAN PROGRAM 12:21
23 12:21:01:16. Assignment of loans by participating lenders. A participating lender may
assign a loan in whole or in part, the servicing of the loan, or both a loan and servicing to any
regulated lender as defined in SDCL 54-3-14. Servicing of the loan may also be assigned, but it must
at all times be with a participating lender as defined. The authority must be notified in writing before
assignment of servicing of the loan.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
24 12:21:01:17. Assignment of loans by bond purchasers. A bond purchaser may assign a loan
in whole or in part to any person as defined in SDCL 2-14-2(18) or any organizations as defined in
SDCL 47-2-1(20). The authority must be notified in writing prior to assignment of the loan.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-24.1-16B-70
Law Implemented: SDCL 1-16E-24.1-16B-1(3); 1-16B-57
BEGINNING FARMER LOAN PROGRAM 12:21
25 12:21:01:18. Assumption of loans, substitution of collateral, and transfer of property.
Loans may only be assumed with the prior approval of the authority and then only if the purchaser
of the property is an eligible applicant for an authority loan. Equipment and other depreciable
property may be exchanged or traded for similar property, and other property such as breeding
livestock may be added or substituted as collateral at the discretion of the lender without the prior
approval of the authority. The benefits of the loan made at the tax exempt rate from the proceeds of
an authority bond must remain with the qualified beginning farmer, and a person to whom property
is traded or otherwise transferred may not obtain the benefits of the authority loan.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-241-16B-70.
Law Implemented: SDCL 1-16E-241-16B-1(3); 1-16B-57.
BEGINNING FARMER LOAN PROGRAM 12:21
26 12:21:01:19. Right to audit. The authority may audit the records of the lender and the
beginning farmer relating to any loan or bond governed by this chapter to ensure that bond proceeds
were used for a qualified purpose by a qualified user.
Source: 22 SDR 97, effective January 22, 1996.
General Authority: SDCL 1-16E-241-16B-70.
Law Implemented: SDCL 1-16E-241-16B-1(3); 1-16B-57.