National Sustainable Agriculture Coalition

Supporting the economic and environmental sustainability of agriculture, natural resources, and rural communities.

Loan Set Asides

Loan Set Asides

Targeting loan funding to beginning and socially disadvantaged farmers and ranchers

Over the past three decades, Congress has set aside Farm Service Agency (FSA) dollars, in the form of farm loan programs, for beginning and socially disadvantaged farmers and ranchers. Reserving funds for these borrowers helps target federal loan programs toward those most in need of credit assistance (e.g., beginning farmers, farmers of color, veteran farms), bring new farmers into the pipeline, and reverse the loss of land ownership among farmers of color. In addition to loan set asides, Congress has also given beginning and socially disadvantaged farmers and ranchers a preference in acquiring land out of government inventory, and incentives in applying for conservation and rural development programs.

 Learn More About Loan Set Asides:

Program Basics

Direct Farm Ownership Loans:

Each year, 75 percent of FSA’s total direct farm ownership loan funds available are reserved (until September 1 of each fiscal year) for beginning farmers and ranchers. If beginning farmers do not utilize reserved funds by September 1, USDA may use any funds remaining to make loans to other qualified borrowers.

Of that 75 percent of set-aside loan dollars, two-thirds (50 percent of the subtotal) is reserved exclusively for down payment loans and joint financing agreement loans for the first half of the fiscal year. After April 1 of each year, if there are loan funds remaining, they may be made available for regular beginning farmer farm ownership loans.

For socially disadvantaged producers, the target participation rate is determined by the percent of total socially disadvantaged people living in a particular county. For instance, if the percentage of African-Americans and other people of color living in County X is 50 percent, then the target participation rate for ownership loans for socially disadvantaged producers living in that county is 50 percent.

For counties within the boundaries of a Native American reservation, the target participation rates are based on populations within the entire reservation (rather than county).

The target participation rate for women producers (who are included in USDA’s definition of socially disadvantaged for credit program purposes) is set based on the percent of women farmers in the state relative to the total number of farmers in that state. Thus, if 8 percent of farmers in State X are women, then the target participation rate is 8 percent.

Target participation rates for socially disadvantaged producers are in effect for the entire fiscal year.

Direct Farm Operating Loans:

Each year 50 percent of total direct operating loan funds available are reserved for beginning farmers and ranchers until September 1 of each fiscal year. If beginning farmers do not require all of those reserved funds, USDA may use any funds remaining in the final month of the fiscal year to make loans to other qualified borrowers. For socially disadvantaged producers, the target participation rate is determined by the percent of socially disadvantaged producers (including women and farmers of color). in a state relative to the total number of farmers in that state The reserves for socially disadvantaged producers that are not used within a state are made available for socially disadvantaged producers in other states, or are re-pooled within the same state for other purposes.

Guaranteed Farm Ownership and Operating Loans:

Each year 40 percent of total loan funds available for guaranteed farm ownership loans and 40 percent of guaranteed farm operating loans funding are reserved for beginning farmers and ranchers for the first half of each fiscal year. After April 1 of each year, any unused funds then become available for any type of guaranteed ownership or operating loan.

In each fiscal year, if there are unused guaranteed farm operating loan funds as of August 1, USDA will make those funds available for beginning farmers seeking a down payment real estate loan if appropriated funds for down payment loans are already extinguished. On September 1 of each year, if there are still unused guaranteed operating loan funds available, USDA will make those funds available for any type of beginning farmer ownership loan.

Inventory Property Sales:

If the government acquires farmland through foreclosures, this “inventory” property is advertised for sale within 15 days of government acquisition. Eligible beginning and socially disadvantaged farmers and ranchers are given first priority to purchase these properties at their appraised market value during the first 135 days the land is on the market. If more than one eligible beginning or socially disadvantaged producer offers to purchase the same property during that period of time, a buyer is chosen at random. USDA may divide or combine inventory properties to maximize new farming opportunities. USDA can also lease the land to a beginning or socially disadvantaged farmer until such time as funding is available for them to receive a direct farm ownership loan with which to purchase the property. If the 135-day period expires without a buyer, the land is open for public sale to any buyer.

Eligibility

USDA provides special incentives, targeted funding, and priority for beginning, socially disadvantaged, and veteran farmers and ranchers in many of their loan, conservation, and rural development programs – including these special FSA loan set-asides in farm loan programs. In order to qualify for these additional considerations and priority status, a farmer must meet the following eligibility criteria.

Beginning Farmers and Ranchers:

In order to qualify for the priority for “beginning farmers and ranchers,” a farmer must, among other things: (1) be an individual or entity that has not operated a farm or ranch for more than 10 years, (2) substantially participate in the day-to-day operation of the farm, and (3) in the case of real estate loans, not already own a farm bigger than 30 percent of the average acreage of the farms in the county.

Socially Disadvantaged Farmers and Ranchers:

In order to qualify for the priority for “socially disadvantaged farmers and ranchers”, a farmer must be a member of a socially disadvantaged group, including American Indians, Alaskan Natives, Asian Americans, African Americans, Native Hawaiians or other Pacific Islanders, Hispanics, and women. For conservation programs, the definition of socially disadvantaged producer does not include women.

Veteran Farmers and Ranchers:

In order to qualify for the priority for “veteran farmers or ranchers,” a farmer must have served in the Armed Forces, including the Army, Navy, Marine Corps, Air Force, and Coast Guard, including the reserve components thereof. For some loan programs, a veteran must also have operated a farm for ten years or less.

In addition to the above, there are additional criteria required to qualify for a direct or guaranteed farm ownership or operating loan. Refer to the specific loan program for additional eligibility requirements.

The Program in Action

Since the creation of these special set-asides, over 200,000 beginning and nearly 88,000 socially disadvantaged farmers have been able to secure farm loans that they otherwise may not have been able to obtain – both through loans made directly or guaranteed by FSA.

Over the past 25 years, FSA has directly provided over $3.4 billion in loan capital to minority and women farmers in every state across the country, and has guaranteed nearly $3.5 billion more. Over roughly the same time period of time, FSA has directly provided over $11.6 billion in loan capital to beginning farmers in every state across the country, and has guaranteed nearly $8.6 billion more. In total, these loans make up over 34 percent of the total loan capital and 55 percent of the total number of loans that FSA has made since the creation of these set-asides. Read more about how these FSA loan set-asides have helped to increase access to credit for new and minority farmers on NSAC’s blog:

How to Apply and Program Resources

FSA administers funding set-asides for beginning and socially disadvantaged farmers within both the direct and guaranteed loan programs. When applying for a farm loan, either through FSA or a commercial bank, it is the responsibility of the borrower to inform the loan officer that they are a beginning or socially disadvantaged farmer in order to receive the priority status. Often, this information will be included in the loan application itself.

Additional information about the programs are posted on the FSA website under Farm Loan Programs. See also, FSA’s website for Beginning Farmers and Socially Disadvantaged Farmers.

To locate your state or county FSA offices, visit the service center locator.

Program History, Funding, and Farm Bill Changes

Congress first established target participation rates for farm ownership loans for socially disadvantaged producers in 1987, and the rest of the set-asides for beginning and socially disadvantaged producers in 1990 and 1992. The 2008 Farm Bill increased the percentage of loan funds reserved for beginning farmers and ranchers to:

  • 75 percent for direct farm ownership loans (up from 70 percent)
  • 40 percent for guaranteed farm ownership loans (up from 25 percent)
  • 50 percent of direct operating loans (up from 35 percent)

The 2008 Farm Bill also made socially disadvantaged farmers eligible on a priority basis to purchase inventory property during the same 135-day period of time that beginning farmers are eligible.

Neither the 2014 nor 2018 Farm Bills made any changes to the loan set-asides. However, several new incentives for veteran farmers were created in the 2014 Farm Bill, such as giving priority to veterans within the: Environmental Quality Incentives Program, the Conservation Stewardship Program, the Conservation Reserve Program Transition Incentives Program, the FSA Microloan Program, the Outreach and Assistance for Socially Disadvantaged Farmers and Ranchers Program, and creating a military agricultural liaison position within USDA.

The 2018 Farm Bill increased the loan guarantee amount for beginning farmers to 95 percent, broadened the 3-year farm management requirement for direct farm ownership loans, and increased loan limits and discretionary funding authorizations for all FSA loan programs.

The amounts available each fiscal year for direct and guaranteed farm ownership and operating loans are determined by the annual agricultural appropriations bill. In recent years, appropriations have averaged about $1.5 billion for both direct farm ownership and operating loans. Appropriations for guaranteed farm ownership and operating loans have averaged $2.75 billion and $2 billion a year, respectively.

For the most current information on program funding levels, please see NSAC’s Annual Appropriations Chart.

Authorizing Language 

Section 5302 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Section 346(b)(2) of the Consolidated Farm and Rural Development Act to increase the beginning farmer loan set aside rates, to be codified at 7 U.S.C. Section 1994 (b)(2).

Section 5302 of the Food, Conservation, and Energy Act (FCEA) of 2008 also amends Section 335(c) of the Consolidated Farm and Rural Development Act to add socially disadvantaged farmers to the inventory land sale preference, to be codified at 7 U.S.C. Section 1985.

Section 5101 of the Agricultural Improvement Act of 2018 amends Section 302(b) of the Consolidated Farm and Rural Development Act to modify the direct farm ownership experience requirement, to be codified at 7 U.S.C. 1922(b).

Last updated in May 2019.