The United States Department of Agriculture makes direct and guaranteed loans to beginner and experienced farmers and ranchers. These loans can be used to buy or expand a farm or for farming operation expenses. The USDA is also committed to providing loans to historically underserved groups, such as minorities, women, youths and new farmers.
What Are USDA Farm Loans?
The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) has a variety of loan programs targeted to beginning and experienced farmers and ranchers. Some of these loans are direct loans from the USDA itself, and other loans are made by third-party lenders with a portion of the loan guaranteed by the department (similar to an SBA loan). The USDA also provides guaranteed loans to businesses in rural areas.
The purpose of the USDA farm loan programs is to provide farmers and ranchers the ability to start, improve, expand or strengthen family farming and ranching operations and to provide credit opportunities to underserved or diverse groups. Underserved and diverse groups include minority and women farmers, urban and rooftop farmers, young farmers, alternative farms (i.e., hydroponics, vertical farming, etc.), specialty crops and organic crops.
There are four main farm loan programs offered by the FSA: Farm Operating Loans, Farm Ownership Loans, microloans and Guaranteed Farm Loans. Farm Operating Loans can be used for any cost associated with farm and ranching operations. Farm Ownership Loans are used to buy a farm or construct, improve or repair farm buildings. Microloans and Guaranteed Farm Loans can be used for either operating or ownership purposes. Guaranteed loans are made by a third-party lender with a portion of the loan guaranteed by the FSA. We think all of these loan programs are an excellent choice for any farmer or rancher looking to start up or expand their business as they have very competitive interest rates, long terms and reasonably high loan amounts.
|Farm Operating Loans|
|Farm Ownership Loans|
|Guaranteed Farm Loans|
There are two special types of Farm Ownership Loans in addition to the standard ownership loan. The first is the Down Payment Program, which allows borrowers to put a 5% or more down payment to purchase a farm. This program is only available to new farmers, minority farmers and women farmers. The second is the Joint Financing Program, and for these loans, the FSA will provide up to 50% of the loan amount and a third-party lender will provide the remaining loan amount.
USDA Farm Loan Interest Rates and Terms
The USDA FSA sets the loan amounts, terms and interest rates for the direct loan programs. For the guaranteed loan program, the USDA FSA sets a maximum interest rate that lenders cannot exceed, but the actual rate will be negotiated by you and your lender.
|Loan Program||Max. Loan Amount||Typical Loan Terms||Interest Rates|
|Farm Operating Loans||$300,000||1 - 7 years||2.875%|
|Farm Ownership Loans*||$300,000||Up to 40 years||3.875%|
|Operating Microloans||$50,000||1 - 7 years||2.875%|
|Ownership Microloans||$50,000||1 - 25 years||3.875%|
|Guaranteed Farm Loans||$1,399,000||1 - 40 years||Set by lender|
*Interest rates on the Down Payment and Joint Financing Loans will be lower.
How Do I Qualify for a USDA Farm Loan?
The requirements to qualify for a USDA farm loan will depend on which program you’re applying to. However, for the direct loan programs, there are some basic eligibility criteria you will need to meet:
- Farm must be an eligible operation (ineligible operations include dogs, exotic birds, tropical fish, or horses used for nonfarm purposes, such as racing, show or pleasure)
- No federal or state convictions for planting, cultivating, growing, producing, harvesting, storing, trafficking, or possession of controlled substances
- Have the legal ability to accept responsibility for the loan
- Have acceptable credit history
- Be a U.S. citizen, non-citizen national or legal resident alien
- Have no previous debt forgiveness by the Farm Service Agency
- Must be unable to obtain sufficient credit elsewhere, with or without FSA loan guarantee
- Not delinquent on any federal debt (excluding tax debt) at time of loan closing
- Not be ineligible due to Federal Crop Insurance violations
- Have sufficient farm management experience (may be through education, on-the-job training or farming experience)
- May need to be owner-operator of farm after loan closing
While the Farm Service Agency states that applicants need to have acceptable credit history, your credit score is not a primary factor in the loan decision process. The agency states that loan applicants aren’t automatically denied if they have isolated incidents of slow payments, no credit history or recent temporary credit problems beyond their control.
Instead, the agency looks for individuals who have direct farm management experience. This may be through working on a farm, post-secondary education in an agriculturally-related field, membership in an agricultural affiliated club (FFA, 4-H, etc.) or agricultural internships and apprenticeships. For the farm ownership loans, the FSA expects applicants to have significant experience in all aspects of farm production and day-to-day operations.
The eligibility criteria for the guaranteed loan program is very similar; however, the lender will decide what acceptable credit history is. As such, applicants with weak or limited credit history may have a harder time getting approved.
If applying for the ownership or operating direct loan, you’ll need to complete up to nine different forms. These forms are the same for both types of loans, and if you’re applying for more than one loan, you only need to fill out one application. The microloan program has a streamlined application process, only requiring one form. You will need to submit a hard copy of your application to your local FSA office (though some borrowers may be allowed to submit their application electronically).
The types of information and documents the FSA will ask for include:
- Personal and contact information
- Business information and a business plan
- Loan information, including amount requested, purpose of loan, description of your farm operation
- Three years of financial history, including tax returns
- Three years of production history
- List of current creditors
- List of property owned or leased, including land and livestock
- Current balance sheet and other financial statements
- Projected income and expenses for next production cycle
- Description of farm training, education and experience
Once your submit your application, the FSA will let you know within 10 days if your application is completed. If so, the FSA will make a loan approval decision within 60 days. If your application is denied, the FSA will provide the reason for the rejection.
For the guaranteed loan programs, you’ll generally need to provide the same information and documents to your lender. There is also a streamlined guaranteed loan, called the EZ Guaranteed Loan, that allows borrowers to apply for up to $100,000 with a simplified application form. We recommend farmers and ranchers contact their lender to find out more about what it takes to qualify and apply for a guaranteed loan (a list of current guaranteed lenders is located on the USDA website).