Microloans


Streamlined credit options for family farms, including young, beginning, socially disadvantaged, and veteran farmers

In a national survey of young and beginning farmers, capital was cited as the number one barrier for those who would like to start farming. While there are a variety of financing options available for aspiring farmers – including private banks, Farm Credit, and the Farm Service Agency – current agricultural credit programs do not adequately meet the needs of many non-traditional and smaller borrowers. These farmers may include those who are young or beginning producers, diversified operations selling directly to consumers (i.e. CSA and farmers’ market farms), small farmers, and urban and peri-urban farms. Operators of these types often have difficulty obtaining financing due to a lack of credit history, the increased risk associated with lending to a new or young farmer, or unfamiliarity with small, diversified farming operations. USDA’s new microloan program was created in order to meet the smaller credits needs and reflect the scale of operations of small, beginning farmers and diversified farms serving local markets.

Learn More About FSA Microloans!

 

Program Basics

The purpose of the Farm Service Agency’s (FSA) microloan program is to meet the smaller credit needs of small, young, beginning, socially disadvantaged, and veteran farmers through a simplified loan application process. This program may also be appropriate for farmers serving local and regional food markets, including urban and small-scale diversified farmers.

Microloans may be used to cover both annual operating expenses, such as seeds, animals, small equipment, or other investments that farmers require for their operations, as well as to purchase farmland. Microloan repayment schedules and loan terms are similar to those of Direct Operating and Ownership Loans. Loans may be made for up to $50,000.

Eligibility

The same eligibility criteria for FSA Direct Operating and Ownership Loans apply to microloans.

Unlike other direct loan programs operated by FSA, microloans made to beginning and veteran farmers do not count toward the total number of years that a farmer can receive assistance through FSA’s direct loan program. For all other farmers, microloans do count toward the seven-year term limit during which a farmer can receive FSA direct loan assistance.

Additionally, the loan recipient must be able to repay and provide enough collateral to secure the loan on at least a dollar-for-dollar basis, and use the loan for authorized purposes. Similar to other FSA loans, a third party pledge of security or co-signer may be accepted to meet these security requirements.

In order to be eligible for the new microloan program, a farmer must have sufficient prior experience working on a farm, but borrowers will be given additional flexibility to include small business experience, participating in a self-directed apprenticeship, or having prior involvement with an agricultural organization, such as 4-H, FFA, farm incubator programs, and farm training organizations.

Compared to standard direct and guaranteed farm loans, FSA will not require an itemized cash flow budget for microloan applicants, a previous requirement that had made it difficult for diversified fruit and vegetable growers and community-supported agriculture farmers to participate in FSA lending programs.

The Program in Action

Since this new loan program launched in January 2013, local FSA offices across the country have been able to provide over $470 million in micro farm loans to help beginning, minority, and small farmers pay for annual operating expenses such as seed and feed, rent and insurance costs, and minor improvements such as hoop houses.  Many of these farmers have relied on high-interest credit cards in the past in order to pay for ongoing farm expenses. That $470 million in small loans has helped 20,000 farmers in almost every state across the country.

Examples of how farmers have used these small farm loans include:

  • In New Mexico, the microloan program helped a Native-American couple purchase 25 bred cows and rent a bull in order to expand their grazing herd. They found this program to be incredibly valuable because many private lenders aren’t able to make farm loans on tribal lands. Without programs like the microloan program, many tribal farmers who have grazing and farming permits would find no way to purchase animals or equipment to utilize the land.
  • In South Carolina, two young brothers used a microloan to purchase a 10,000 bushel grain bin with auger, to provide additional storage just in time for the harvest season. Being that young with little collateral and no credit history proved a challenge for these young farmers, and if it weren’t for the microloan program, they would have suffered a significant crop loss with nowhere to store their crop after harvest.

To read a more in-depth analysis of how this program has increased access to credit in different regions, check out this microloan analysis on NSAC’s blog.

How to Apply and Program Resources 

There is a streamlined application process for microloans that requires less paperwork for farmers to fill out and appropriately reflects the smaller loan amount. Microloan application forms are available online but farmers must apply in person at an FSA county office or USDA Service Center.

The Microloan program is administered by the Farm Service Agency. Information about the program is posted on the FSA website under Farm Loan Programs.

For information and applications, go to your FSA regional Service Centers or to your state FSA office. You can locate all of the contact information by using the FSA Service Center Locator.

Read about the latest news about FSA microloans on our blog!

Program History, Funding, and Farm Bill Changes

FSA began making microloans in 2013 through existing authority through their Direct Operating Loan Program. The 2014 Farm Bill creates a permanent authorization for this program and makes additional changes, such as exempting beginning and veteran farmers from term limits and providing these farmers with an optional lower interest rate (applicable in years when regular interest rates are high), and creating a pilot program to allow FSA to work with a third party intermediary lender to make microloans on FSA’s behalf. Many of these changes are self-implementing, but some will not take effect until FSA issues and finalizes regulations through the federal rulemaking process.

Microloans are funded through FSA’s Direct Operating and Ownership Loan Programs, and funding levels for these loans are established in the annual appropriations process. In recent years, Congress has appropriated $2.8 billion for direct operating and ownership loans – of which over $143 million went to the new microloan program. These funding levels are expected to continue in future years, but it is expected that FSA will increase the number of microloans made each year as more outreach is done to farmers on this new loan program.

Authorizing Language

Section 5106 of the Agricultural Act of 2014 amends Section 313 of the Consolidated Farm and Rural Development Act, to be codified at a note to 7 U.S.C. Section 1943.


Last updated in October 2016.