Direct and Guaranteed Farm Ownership and Operating Loans
USDA’s Farm Service Agency (FSA) provides direct and guaranteed farm ownership and operating loans for farmers and ranchers. Direct loans are made by FSA. Guaranteed loans are made by banks, credit unions, or other lenders with a guarantee against significant loss of principal or interest on a loan made by FSA. Percentages of both direct and guaranteed ownership and operating loans are reserved for beginning farmers and ranchers and for socially disadvantaged farmers and ranchers.
Direct and guaranteed farm ownership loans can be used to purchase farmland, construct or repair buildings, or promote soil and water conservation. Direct and guaranteed operating loans can be used to purchase livestock, farm equipment, feed, seed, fuel, insurance or other operating expenses. Operating loans can also be used to pay for minor improvements to buildings, costs associated with land and water development, and to refinance debts under certain conditions.
Program eligibility criteria for a direct loan from FSA include sufficient education, training, and experience in managing or operating a farm. For all direct farm ownership loans, an applicant must have participated in the operation of a farm or ranch for at least 3 years out of the past 10 years.
Applicants for direct and guaranteed loans must be unable to obtain credit elsewhere and have an acceptable credit history. Direct and guaranteed loan borrowers must also be the operator or tenant operator of a farm that is not larger than a “family farm” after the loan is closed. A family farm is defined as one in which all of the management and a substantial amount of the total labor is provided by the farm family. All borrowers have to comply with highly erodible land and wetland cross-compliance farm bill requirements.
Repayment terms and interest rates vary according to the type of loan made, but operating loans are normally repaid within seven years and farm ownership loans cannot exceed forty years.
2008 Farm Bill Changes
The 2008 Farm Bill increased the per farm loan limit for direct operating and for direct farm ownership loans from $200,000 to $300,000. The loan limit for guaranteed loans did not change, remaining at a combined limit of $1,112,000 (2010), a rate adjusted for inflation each year. The new Farm Bill also increased the authorized funding level for direct loans, but not for guaranteed loans. Also revised was the special Conservation Loan Program.
The 2008 Farm Bill directs FSA to develop a plan that will promote the goal of transitioning borrowers from direct to guaranteed credit and from guaranteed to regular commercial credit in the shortest amount of time possible. In doing so, FSA is instructed to coordinate this graduation policy with its borrower training, loan assessment, and market placement programs and services.
The 2008 Farm Bill did not change existing term limits (i.e., limits on the number of years a borrower may receive loans) on direct or guaranteed loans, but did extend a temporary suspension of the guaranteed loan term limits through the end of calendar year 2010.
Section 5003 of the Food, Conservation and Energy Act (FCEA) of 2008 amends Section 305(a)(2) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1925(a)(2), to increase the per farm direct ownership loan limit.
Section 5102 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Section 313(a)(1) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1943(a)(1), to increase the per farm direct operating loan limit.
Section 5103 of the Food, Conservation, and Energy (FCEA) Act of 2008 CEA amends Section 5102 of Farm Security and Rural Investment Act (FSRIA) of 2002, to be codified at a note to 7 U.S.C. Section 1949, to extend the temporary suspension of guaranteed loan term limits until December 31, 2010.
Section 5303 of the Food, Conservation, and Energy (FCEA) Act of 2008 amends Section 346(b)(1) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1994(b)(1), to increase the funding authorizations for direct ownership and operating loans.
The 2008 Farm Bill increases the authorization for appropriation for direct operating loans from $565 million a year to $850 million a year, and for direct ownership loans from $205 million to $350 million. The actual amount available each year for direct and guaranteed loans depends on funding levels contained in the annual agricultural appropriations bill.
The changes to the direct loan limits are self-implementing and went into effect immediately. The changes were subsequently codified in the Code of Federal Regulations through publication of a final rule in the Federal Register on December 8, 2008. A proposed rule on the new graduation provision was published in the Federal Register for public comment on August 7, 2009, with a final rule expected in 2010. Funding levels for direct operating and ownership loans are determined by the annual appropriations process. To apply for a loan, a potential borrower must contact the Farm Service Agency office in his or her county for an application package.
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 clicking on your state at this site.