Access to credit is a make-or-break issue for farmers, particularly for aspiring producers that need additional support to launch their careers in agriculture. The National Sustainable Agriculture Coalition (NSAC) fought throughout the early 1990s to secure legislative shifts that would redirect credit resources from the U.S. Department of Agriculture (USDA) toward beginning farmers. Today, USDA direct and guaranteed farm loans provide a crucial source of capital for farmers not well served by commercial lenders – including young and aspiring farmers who may lack the credit history needed for a commercial loan. FSA loans are also a crucial source of financing for farmers of color and veterans, who themselves face unique barriers to obtaining a farm loan from private lenders.
Learn More About Direct and Guaranteed Farm Loans:
USDA’s Farm Service Agency (FSA) provides direct and guaranteed farm loans for farmers and ranchers of all kinds. Direct loans are made and administered by local FSA offices, while guaranteed loans are made and administered by banks, credit unions, community development financial institutions (CDFIs), or other lenders. Guaranteed loans are provided with a federal guarantee against significant loss of principal or interest on a loan made by FSA. Beginning and socially disadvantaged farmers and ranchers are given priority in both loan programs through loan set-asides.
Loan Purposes – 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.
Loan Terms – 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. Interest rates are calculated monthly, and are the lowest rates in effect at the time of loan approval or loan closing. You can find the current interest rates on the FSA website. The maximum loan amount a farmer can receive was recently increased in the 2018 Farm Bill. Current maximum loans limits are $400,000 (direct operating); $600,000 (direct farm ownership); and $1.75 million (guaranteed operating / ownership). Only guaranteed loans are adjusted for inflation each year.
Applicants for direct and guaranteed farm loans must be unable to obtain credit elsewhere (or only able to obtain credit without a federal guarantee), 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 conservation cross-compliance farm bill requirements.
Direct Loans – To be eligible for a direct loan from FSA, a farmer must demonstrate 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 out of the past 10 years. However, there is some discretion for FSA to consider less than three years depending on the type of management experience the farmer has.
An applicant who applies for direct loan assistance must be a beginning farmer, one who has never received a direct loan, or one who has not had a direct loan outstanding for more than the term limits allowed (10 years for direct ownership and 7 years for direct operating). Additionally, the loan recipient must be able to repay and to provide enough collateral to secure the loan on at least a dollar-for-dollar basis, and use the loan for authorized purposes.
Over past 75 years, FSA has provided over $60 billion in loan funding to farmers through its direct loan program, and has guaranteed over $59 billion in additional loan capital. In total, over 3.7 million loans have been made to farmers and ranchers in all 50 states as a result of federal FSA loan programs.
Here are some examples of how farmers across the country have used and benefitted from FSA farm loans:
FSA administers both the direct and guaranteed loan programs. Farmers apply for direct loans through their local FSA county office, whereas guaranteed loans are made through a farmer’s local bank, credit union, CDFI, or other private lending institution.
Direct loan application forms are available online but farmers must apply for direct loan assistance in person at an FSA county office or USDA Service Center. FSA loan officers will meet with the applicant to assess all aspects of the proposed or existing farming or ranching operation to determine if the applicant meets the eligibility requirements set out in law. All borrowers who are approved to receive a direct loan from FSA are required to attend borrower training, which typically consists of a classroom type workshop on financial management. More information on borrower training options and the loan application process is available at FSA county offices.
Farmers apply for guaranteed loans as they normally would with local commercial lenders that make agricultural loans in their community. The lender analyzes the farmer’s business plan and financial condition. If the farm loan proposal looks realistic, is financially feasible, and there is sufficient collateral, but it cannot be approved because it does not meet the lending institution’s loan underwriting standards, the lender may apply for an FSA loan guarantee.
In some cases, farmers may seek an FSA direct loan first, but a guaranteed loan must always be considered before a direct loan can be provided. Once an applicant provides all the financial and organizational information to the lender, the lender submits a guaranteed loan application to the local FSA office and the request will be approved or disapproved within 30 days after receipt of a complete application.
The number of guaranteed loans that FSA can provide each year varies depending on the demand for loan guarantees and the amount of guarantee authority approved by Congress.
For information and applications, go to your FSA regional Service Centers or to your state FSA office. You can also locate all of the contact information by clicking on your state on the FSA’s Service Center Locator.
To locate an FSA Guaranteed lender, check out the resources under “Locating a Lender” on FSA’s Guaranteed Farm Loan page.
Read about the latest news about farm loan programs on our blog!
FSA Direct and Guaranteed Farm Loans were first created in the 1933 and 1980 Farm Bills respectively. Since then, both programs have undergone significant changes. The 2008 Farm Bill increased the per farm loan limit for direct operating and farm ownership loans from $200,000 to $300,000 to reflect the higher annual costs associated with farming today, which were recently increased again in the most recent farm bill. The 2008 Farm Bill also increased the authorized funding level for direct loans, but not for guaranteed loans, and directed 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.
The 2014 Farm Bill made several modifications to FSA farm loan programs, including eliminating the term limits (i.e., limits on the number of years a borrower may receive loans) on guaranteed loans, although existing limits on direct loans remain unchanged. The 2014 Farm Bill also gave additional flexibility for FSA to consider fewer than three years of farm management experience in order for a farmer to qualify for a direct farm ownership loan and clarifies that the average (not median) size farm in a borrower’s county shall be used to determine loan eligibility status. Additionally, the 2014 Farm Bill directed FSA to take steps to collect data on local food markets in order to determine valuation and unit prices for local food products. There were also several changes made to the microloan, conservation loan, and down payment loan programs.
The most significant change made in the 2018 Farm Bill is the increase on maximum loan limits for both direct and guaranteed farm loans. The bill raises the cap on direct operating loans from $300,000 to $400,000; direct ownership from $300,000 to $600,000; and on guaranteed loans from $1.39 million to $1.75 million (adjusted annual for inflation). The bill also increases the federal guarantee for loans to beginning farmers to 95 percent.
FSA loan programs are funded through the annual agriculture appropriations bill. The 2008 Farm Bill increased the authorization for appropriations 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 most recent farm bill makes long overdue adjustments to align authorization levels more closely with actual appropriated levels and increases total authorizations to $3 billion for direct loans and $7 billion for guaranteed loans. The actual amount available each year for direct and guaranteed loans depends on funding levels contained in the annual agricultural appropriations bill.
Historical Funding Levels for FSA Direct and Guaranteed Loans
|Fiscal Year||Total Funding (millions)|
|Direct Ownership||Guaranteed Ownership||Direct Operating||Guaranteed Operating|
For the most current information on program funding levels, please see NSAC’s Annual Appropriations Chart.
Section 5302 of the Agriculture Improvement Act of 2018 amends Section 346(b) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1994(b), to increase direct and guaranteed loan authorization levels.
Section 5103 of the Agriculture Improvement Act of 2018 amends Section 305 of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1925, to increase loan limits on direct and guaranteed ownership loans.
Section 5201 of the Agriculture Improvement Act of 2018 amends Section 313 of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1943, to increase loan limits on direct and guaranteed operating loans.
Last updated in December 2019.