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Farm Loans for Small Farmers

If you need a loan to launch a new farming enterprise or refinance an existing one, researching your options is key to finding the loan that's right for you. To help you get started, we're presenting the following USDA's Farm Service Agency (FSA) information as one option you might consider. Look inside at our Resources section for web sites that can provide some additional financing information, or try other loan sources including local banks, the Farm Credit System or regional development corporations.

USDA's Farm Service Agency (FSA) makes and guarantees loans to family farmers and ranchers to purchase farm land and finance agricultural production.. FSA's loan programs are designed to help family farmers who are temporarily unable to obtain private, commercial credit. In many cases, these are beginning farmers who have insufficient net worth to qualify for commercial credit. In other cases, these are farms who have suffered financial setbacks from natural disasters, or who have limited resources with which to establish and maintain profitable farming operations.

Guaranteed Loans

Some farmers obtain their credit needs through the use of loan guarantees. Under a guaranteed loan, a local agricultural lender makes and services the loan, and FSA guarantees it against loss up to a maximum of 90 percent in most cases. In certain limited circumstances, a 95-percent guarantee is available. FSA has the responsibility of approving all loan guarantees and providing oversight of lenders' activities.

Direct Loans

For those unable to qualify for a loan guarantee from a commercial lender, FSA also makes direct loans, which are serviced by an FSA official. FSA has the responsibility of providing credit counseling to its direct borrowers by making a thorough assessment of the farming operation. The agency evaluates the adequacy of the real estate and facilities, machinery and equipment, financial and production management, and the farm's goals.

Unlike FSA's commodity loans, the following types of farm loans must be fully secured and can only be approved for those who have repayment ability.

Farm Ownership Loans

Eligible applicants may obtain a maximum of $200,000 for a direct loan and $300,000 for a guaranteed loan. The maximum repayment term is 40 years for both direct and guaranteed farm ownership loans.

Farm Operating Loans

Eligible applicants may obtain up to a maximum of $200,000 for a direct loan and $400,000 for a guaranteed loan. The repayment term may vary but typically will not exceed seven years for intermediate term purposes.

Emergency Loss Loans

Emergency loss loans are available only as direct loans from FSA, and are designed to assist farmers who suffered physical or production losses in areas declared by the President or designated by the Secretary of Agriculture or the FSA Administrator. The maximum indebtedness under this program is $500,000.

Targeted funds for beginning farmers

Each year, Congress targets a percentage of farm ownership and farm operating loan funds to beginning farmers. Beginning farmers must have been in the business less than 10 years and meet certain other requirements concerning land ownership and management ability.

Eligible beginning farmer applicants may obtain a direct loan of up to 30 percent of the purchase price of a family-size farm, or the farm's appraised value, whichever is less. Applicants must provide at least a 10 percent down payment on the purchase. The interest rate on the 30 percent portion is fixed at 4 percent and it must be repaid in 10 years or less. The remaining balance, not to exceed 60 percent, may be guaranteed by FSA. The purchase price or appraised value of the farm, whichever is lower, cannot exceed $250,000. This program also provides a means for retiring farmers to transfer their land to a future generation of farmers and ranchers.

Maximum loan amounts

Direct loans are made and serviced by FSA, while guaranteed loans are made and serviced by commercial lenders. Types of loans and maximum amounts include:

Direct Operating Loan $200,000
Guaranteed Operating Loan $400,000
Direct Farm Ownership Loan $200,000
Guaranteed Farm Ownership Loan $300,000

Sale of Inventory Farmland to Beginning Farmers and Ranchers

FSA advertises acquired farm property within 15 days of acquisition. Eligible beginning farmers and ranchers are given first priority to purchase these properties at the appraised market value for the first 75 days after acquisition.

Joint Financing Plan

Beginning farmer or rancher applicants may choose to participate in a joint financing plan that is also available to other applicants. In this program, FSA lends up to 50 percent of the amount financed, and another lender provides 50 percent or more. FSA may charge an interest rate of not less than 4 percent.

Where to Apply

Applications for these loans may be made at the FSA county office serving the county where the farming operation will be conducted. The local FSA office is listed in the telephone directory under U.S. Government, Department of Agriculture, Farm Service Agency. The USDA prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, and marital or familial status.