By: Chris Zoller, Extension Educator, ANR, Tuscarawas County
The Farm Service Agency (FSA) is housed within the U.S. Department of Agriculture (USDA) and offers a variety of loan programs. The goal of FSA loans is to help farmers obtain credit from commercial lenders. The various FSA loan options are discussed in this article.
Direct Farm Loans
Designed to help farmers start, purchase, or expand a farming operation. This includes beginning farmers who have limited financial history to obtain commercial credit and those who experience a financial hurdle because of natural disasters.
Guaranteed Farm Loans
These loans are serviced by commercial lenders (banks, Farm Credit System, or credit unions) and are available to farmers who wouldn’t qualify for financing directly from a commercial lender. FSA guarantees between 90 percent and 95 percent of the loan against loss. The loan is serviced by a commercial lender.
Farm Ownership Loans
These can be used to purchase a farm, expand an existing farm, construct new buildings or improve existing structures, pay closing costs, and implement soil and water conservation practices. A maximum of $600,000 is available as a direct loan. FSA guarantees farm ownership loans to a maximum of $1,825,000, with a maximum repayment period of 40 years.
Farm Operating Loans
These direct loans are available to a maximum of $400,000 and can be used for operating expenses, machinery and equipment, minor real estate repairs or improvements, and to refinance debt. FSA will guarantee these loans up to a maximum of $1,825,000 with repayments terms up to seven years.
As the name implies, annual operating loans are generally paid within 12 months or upon the sale of the commodities produced. Direct operating loans require applicants to have sufficient education, training, or at least one year of farm management experience in the last five years.
Down Payment Program
This program is designed to assist socially disadvantaged and beginning farmers purchase a farm and includes the following requirements:
- Cash down payment of at least five percent of the purchase price.
- Maximum loan amount does not exceed 45 percent of the far, the appraised value of the farm to be acquired or $667,000. This equals a maximum loan amount of $300,150.
- Repayment term is a maximum of 20 years.
- Interest rate is four percent below the direct farm ownership rate, but no less than 1.5 percent.
- Remaining balance from commercial lender or private party. FSA can provide up to a 95 percent guarantee.
- Lenders participating must have an amortization period of no less than 30 years and cannot require a balloon payment in the first 20 years of the loan.
Youth Loans
Young people involved in 4-H, FFA, or similar agricultural organizations may apply for direct loans with a maximum amount of $5,000. The loan must provide an opportunity for the applicant to acquire education and experience in agriculture-related skills. Youth loans are available to anyone between the ages of 10 and 20 at the time of loan closing.
Emergency Loans
Farmers who experience loss as the result of a natural disaster may apply for these loans. The county or counties where the farm is located must be declared a disaster area by the President or Secretary of Agriculture. For production loss loans, applicants must document a 30 percent loss in a single enterprise. Emergency loans are available only as direct loans from FSA with a maximum loan amount of $500,000.
Conservation Loans
These loans are designed to assist farmers with the implementation of conservation practices included in a USDA approved conservation plan or Forestry Management Plan. The maximum loan amount is $1,825,000 with a maximum repayment term of 30 years. Conservation loans are available only as guaranteed loans.
Beginning & Socially Disadvantaged Farmers
Congress provides a percentage of money each year specifically for beginning and socially disadvantaged farmers to assist with farm ownership and farm operating loans. The maximum loan amount is $300,150.
Land Contract Guarantees
Beginning or socially disadvantaged farmers have an opportunity to apply for financial guarantees for land sale contracts. The seller may request either of the following:
- Prompt Payment Guarantee – a guarantee up to the amount of three amortized annual installments plus the cost of related real estate taxes and insurance.
- Standard Guarantee – a guarantee up to 90 percent of the outstanding principal balance under the land contract.
The purchase price may not exceed the lesser of $500,000 or the market value and the borrower must provide a minimum down payment of five percent of the purchase price. The interest rate is fixed at a rate not to exceed the direct farm ownership interest rate in effect at the time of guarantee, plus three percentage points. The guarantee period is 10 years and contract payments must be amortized over a minimum of 20 years. Balloon payments are not allowed during the first 10 years of the guarantee.
Locating Your FSA Office
If you are interested in additional information about FSA loan programs, contact your local FSA office. Contact information is available here: https://www.farmers.gov/working-with-us/service-center-locator.