by: Chris Zoller, Extension Educator, ANR in Tuscarawas County
The Farm Service Agency (FSA) is a part of the U.S. Department of Agriculture (USDA) that makes and guarantees loans to eligible socially disadvantaged (SDA) farmers to purchase and operate family farms. Each fiscal year, FSA allocates a portion of its direct and guaranteed farm ownership and operating loan funds to SDA farmers.
A socially disadvantaged farmer is one whose members have been subject to racial, ethnic, or gender prejudice because of their identity as members of a group without regard to their individual qualities. These groups consist of American Indians or Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians or other Pacific Islanders, Hispanics, and women.
Types of Loans and Uses of Loan Funds
Direct farm ownership and operating loans are made by FSA to eligible farmers. Guaranteed farm ownership and operating loans are made by lending institutions subject to federal or state supervision (banks, savings and loans, units of the Farm Credit System) and guaranteed by FSA. Typically, FSA guarantees 90% of any loss the lender might experience if the loan fails. Farm ownership loans may be used for several purposes, including purchasing, or enlarging a farm, purchasing easements or rights of way needed to operate the farm, erecting, or improving buildings, implementing soil and water conservation practices, and paying closing costs. Guaranteed farm ownership loans may also be used to refinance debt.
Operating loan funds may be used to purchase a variety of items, including livestock, poultry, farm equipment, feed, seed, fuel, fertilizer, chemicals, insurance, and other operating expenses. Funds may also be used for training costs, closing costs, and refinance or reorganize debt.
Terms and Interest Rates
Repayment terms for directing operating loans are based on the collateral securing the loan and generally run from one to seven years. For farm ownership loans, the repayment terms vary, but the repayment period never exceeds 40 years.
Direct loan interest rates are set periodically and are subject to change. Guaranteed loan terms are established by the lender, as are interest rates.
Down Payment Program
FSA has a loan program to assist SDA and beginning farmers interested in purchasing a farm. In addition, retiring farmers may use this program to transfer their land to others. Please see below about what is necessary to qualify:
- Cash down of at least 5% of the purchase price by the applicant.
- Maximum loan amount cannot exceed 45% of the least of the purchase price of the farm to be acquired, appraised value of the farm, or $667,000 (the maximum loan amount is $300,150).
- The loan term is 20 years and the interest rate is 4% below the direct farm ownership loan rate, but not lower than 1.5%.
- The balance of the purchase price not covered by the FSA down payment loan and applicant down payment may be financed by a commercial, cooperative, or private lender, including the seller. Financing provided by eligible commercial or cooperative lenders may be guaranteed by FSA up to 95%.
- The non-Agency financing must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.
Land Contract Guarantees
Certain financial guarantees are available to the seller if property is sold to a beginning or SDA farmer. The seller has the option to request either of the following:
- Prompt Payment Guarantee: A guarantee up to the amount of three amortized annual installments plus the cost of real estate taxes and insurance.
- Standard Guarantee: A guarantee of 90% of the outstanding balance under the land contract.
The farm purchase price cannot exceed $500,000 or the market value of the property. The buyer is required to provide a minimum down payment of 5% of the purchase price of the farm. The interest rate is fixed at a rate not to exceed the direct farm ownership loan interest rate in effect at the time the guarantee is issued, plus three percentage points. The guarantee period is 10 years. Contract payments must be amortized a minimum of 20 years.
Sale of Inventory Farmland
FSA advertises within 15 days of receipt all inventory property. Eligible SDA and beginning farmers have priority to purchase these properties at the appraised market value. If one or more eligible SDA or beginning farmer offers to purchase the same property in the first 135 days, the buyer is chosen randomly.
How to Apply
Direct loans are available through your local Farm Service Agency office. For guaranteed loans, you must apply with a commercial lender who participated in the Guaranteed Loan Program. Your local FSA office can provide a list of participating institutions.
Locating Your FSA Office
If you are unsure which FSA office services your county, please visit: the https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa