By: Chris Zoller
Building and managing a successful farm is a significant financial investment and can be especially challenging for those just beginning, especially those unable to obtain financing through commercial lenders. The United States Department of Agriculture (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers.
Each year money is allocated to FSA for farm ownership and farm operating loans for beginning farmers. These loan programs are important as beginning farmers have historically experienced more difficulty obtaining financial assistance.
What is a Beginning Farmer?
A beginning farmer is an individual or entity who:
- Has not operated a farm for more than 10 years
- Substantially participates in the operation
- For farm ownership loans, the applicant cannot own a farm greater than 30 percent of the average size farm in the county, at the time of application
- If the applicant is an entity, all members must be related by blood or marriage, and all members must be eligible beginning farmers
Additionally, beginning farmers must meet the loan eligibility requirements for the program.
Maximum Loan Amounts
The Farm Service Agency makes available a variety of loans, each with a different maximum loan amount. The loan types and maximum allowable amounts are provided below:
- Direct farm ownership: $600,000
- Direct operating loan: $400,000
- Microloan: $50,000 each for operating and farm ownership
- Guaranteed farm ownership or operating loan: $1,825,000
- EZ Guarantee: $100,000 ($50,000 if the lender is a micro lender)
Down Payment Program
FSA has a special loan program to assist beginning farmers purchase a farm. Retiring farmers may use this program to transfer their land to future generations. Requirements are listed here:
- Cash down payment of at least 5% of the purchase price
- Loan amount limited to 45% of the least of:
- Purchase price of the farm
- Appraised value of the farm or
- $ 667,000 ($300,150) maximum
- 20 year loan term
- Interest rate is 4% below the direct farm ownership rate, but no lower than 1.5%
The remaining balance may be obtained from a commercial lender or private party. FSA can guarantee up to 95% of the loan if financing is obtained from a commercial lender. Participating lenders do not have to pay a loan guarantee fee.
If financing is secured from participating lenders, the amortization period must be at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.
Additional Options to Access Capital
Beginning farmers may be interested in participating in a joint financing arrangement. FSA will lend up to 50% of the amount financed and another lender provides the remaining percentage. These funds can be used for any authorized farm ownership purpose. The interest rate is two percent less than the direct ownership rate but not lower than 2.5%. The term of the loan will not exceed 40 years or the useful life of the security.
Land Contract Guarantees
FSA does provide financial guarantees for land sales to beginning farmers. 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 any related real estate taxes and insurance.
- Standard Guarantee: A guarantee of 90% of the outstanding principal 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.
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: https://www.farmers.gov/working-with-us/service-center-locator.