Buying a Farm: How to Get a Farm Loan with No Down Payment

April 19, 2023

It’s no secret that starting a farm can be capital intensive. Operating costs such as buying a new tractor, building a barn, fertilizer, livestock, seed, fencing and even living costs can really set a new farmer back. At FarmRaise, one of the most common questions we’re hearing from our first time farmers is “how can I get a farm ownership loan if I can’t afford the down payment?”

Our answer: Fortunately, there’s a federal loan program out there that doesn’t require a down payment.

What Is an FSA Loan?

The Farm Service Agency’s (FSA) loans are low-interest loans specifically designed for “small, beginning farmers, niche and non-traditional farm operations.” In other words, FSA microloans fund land acquisition and farm operations and are a great option for first time farmland buyers and beginning farmers and ranchers. 

Beginning farmers qualify for FSA loans, but the term “beginning” can be misleading. To the USDA, a “beginning” farmer has more than three but fewer than ten years of farming experience. But that qualification is not enough to secure an FSA loan in and of itself.

How to Qualify for an FSA Microloan

To qualify for ownership FSA loans, a farmer should have at least three years of direct farm management experience. This can include working on someone else’s farm with significant leadership and decision making authority. If you’ve had a year of business training or a post-secondary degree in agriculture, you can substitute that as experience, but that’s only for ownership loans (we’ll get to what those are in a moment).

What if you don’t have much farm experience yet? Take a look at our guide for how to start a farm with little experience or money. It gives valuable tips for how to gain experience and how you can prepare yourself for a successful new farm in the meantime.

One other excellent tip is to keep your finances organized. Start thinking of this well ahead of time so that when you go to your local FSA office, you can present an organized and clear picture of your current financial situation. FarmRaise has a cashflow mobile app called FarmRaise Tracks that can help you do exactly this.

Keep your finances organized and in one place so that you can present a clear picture of your financial situation. Sign up for FarmRaise Tracks to manage your finances.

Operating vs. Ownership: Two Types of FSA Microloans

The FSA will lend beginning farmers up to $100,000. That’s a max of $50,000 for each category - operational and ownership.  

Regardless of which loan you’re applying for, FSA microloan interest rates can’t be beat. Historically, interest rates for operating and ownership microloans range between 1.5% and 5%. 

At the time of this writing, the interest rates for FSA microloans are:

Farm Operating Microloan - 3.875%
Farm Ownership Microloan - 4.125%

What’s the difference? With an FSA Farm Ownership Microloan, you can make a down payment on land. With an FSA Farm Operating Microloan, you can finance the day-to-day operating of the farm like materials and equipment.

For either loan, you have a repayment period of 25 years to pay back what you borrow. This is not to be confused with other types of FSA loans like FSA guaranteed or direct farm loans which are 40 year farm loans.

Since we’re talking about acquiring land with no down payment, we’ll be referring to ownership loans in this blog post.

What are some alternatives to FSA Loans? 

FarmRaise is all about finding farmers funding options, and we're building a database of grants that farmers can browse to find more low-cost ways of funding their projects. If this is interesting to you and you want to stay in the loop on funding options, check out how we partner with farmers to find funding.

The Pros and Cons of an FSA Microloan 

Since it’s a loan, you’ll have to pay that money back. You’ll also need to prove that you have the ability to pay it back. That means you’ll need to use farm and ranch assets (i.e. land, tractor) to collateralize the loan. So if you want a $50,000 loan, you’ll need at least $50,000 in assets. We’ll get to the documentation and proof you’ll need in the next section.

Here’s a huge advantage: The turnaround time to get your funding is much faster with an FSA microloan than with a government grant. If you’re looking for immediate support, an FSA microloan is a great option for you because you’ll usually hear back about your loan application within about a month or so after you submit. This is much quicker than the typical three to nine months it takes to get a response on a government agricultural grant like the Environmental Quality Incentives Program (EQIP). 

What Credit Score Do You Need for an FSA Microloan?

The FSA is less concerned with your exact credit score and more concerned with whether or not you’re able “to obtain sufficient credit elsewhere.”

To go more into detail, the FSA is a “lender of last resort.” As opposed to looking at your credit score, they look into your credit history and the reasons why your score may be low. In fact, to get an FSA microloan, you must have been denied a commercial loan elsewhere.

How Can I Apply for an FSA Microloan?

First, and this is a critical step, you’ll need to set up FSA Records. FSA Records give your farm a unique identifier and are necessary for applying for any FSA loan. To set up a farm number, read more about what a farm number is and how to get one

Owning the land is one of the best ways that a farmer can build wealth, but land prices can be prohibitively expensive for farmers. (Pictured: Aspen Moon Biodynamic Farm in Longmont, Colorado)

You’ll also need the following documentation to apply for an FSA microloan:

  • Copies of your leases, contracts, options, and other agreements
  • An identifier like a driver’s license or Green Card
  • Financial statements like from credit cards or other loans
  • Documents requested by your loan officer

The documentation you’ll need vary depending on whether you're applying as an entity or an individual. Check here for more details about documentation

Once you have a farm number and other documentation, you’re ready to apply. You can contact your local FSA office directly for more information and to begin the process with a loan officer. However, that process can be long, confusing and require a lot of effort and paperwork. That’s why we created a simplified application form to save you time and make sure you’re filling out paperwork properly. You can also receive guidance from our FarmRaise team who will guide you every step of the way. 

Other FSA Loans

Microloans are designed for beginning farmers. But the FSA offers loans for established farmers, too. FarmRaise can help you understand other FSA loans including:

  • Direct ownership loans (up to $600k)
  • Direct operating loans (up to $400k)
  • Guaranteed loans
  • Down payment loans

If you’ve got experience farming or ranching, these loans may be more suitable for you.  FarmRaise can explain the difference between the loans, their terms, and answer any other questions you may have as we guide you through the application. But first, make sure you’ve set up your farm number. Happy farming!

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