A Farmer’s Guide to How FSA Loans Work

August 2, 2022

The USDA’s Farm Service Agency (FSA) lends billions of dollars to farmers and ranchers every year so that farmers enlarge or improve their family farms for future generations. And they do this at attractively low interest rates which usually range between 1.25% and 5%. Read on to learn about the types of FSA loans for farmers and ranchers and how FarmRaise can support you in your application process.

Categories of FSA Loans

  1. Direct ownership and operating loans = farmer or rancher borrows money directly from the FSA.
  2. Guaranteed loans issued by other banks = farmer or rancher borrows money from a bank, the FSA repays the bank if the farmer fails to repay the loan.

Whether you apply through the FSA or with your local bank, you’ll need to know more about the difference between direct ownership and operating loans.

Direct Ownership Loans 

Think of direct ownership loans as an investment in your capital and physical assets. Aside from the “regular” types, there are other types of direct ownership loans: Joint financing, down payment and microloans. Your lender will help you decide which is best for you. 

The maximum amount you can get with these loans varies greatly and the maximum period you have to repay also varies. For example, with a down payment loan you’d have up to 20 years to pay off a maximum loan amount of $300,150, while with a “regular” or joint financing loan, you’d have up to 40 years up to pay off a maximum loan amount of $600,000. The amount of your loan depends on your qualifications like your experience and your credit history. 

 Direct ownership loans can be used to:

  1. Purchase or expand a farm or ranch
  2. Pay closing costs
  3. Construct or improve farm buildings
  4. Conserve and protect soil and water resources

Direct Operating Loans

You can get up to $400,000 to help with day-to-day work on the farm or ranch with a direct operating loan. Similar to ownership loans, the amount you can get with an operating loan depends on your loan officer and your qualifications like your experience and your credit history.

Direct operating loans can be used to:

  1. Purchase livestock, seed and equipment
  2. Cover farm operating costs and family living expenses

Subcategories of FSA Loans

There are subcategories of FSA direct loans which you can think of as pots of money set aside for a specific use by a specific group for a specific circumstance. Many of those pots are for “historically underserved” farmers and ranchers. Here are some examples of subcategories of FSA loans: 

Are You Eligible for FSA Loans?

Regardless of which type of loan you’re interested in, the FSA determines your eligibility for a loan in the same way: By analyzing your farm’s cash flows and assets/liabilities. Cashflows demonstrate your ability to make principal and interest payments. Assets serve as collateral that, in the worst-case scenario, can be liquidated to repay a loan. So if you’re looking for a loan of a certain amount, you’ll need to have that amount in assets for collateral.

The FSA is a “lender of last resort,” meaning they support farmers that cannot get loans anywhere else. To apply, you must show proof that you were denied a loan from a commercial lender, like Farm Credit. 

How to Apply for FSA Loans

Before you can apply, you’ll need to set up or update your FSA records. It’s a process that can take dozens of pages of paperwork and a workday’s worth of hours to complete. FarmRaise can take care of that process so you don’t have to. In the end, you’ll get a farm number - a unique identifier that stays with your farm even if you sell it or move your agribusiness to another lot of land. 

Once you have your farm number, the FSA loan application itself requires nine forms. Be sure to double-check your work before submitting. FSA loan applications take a lot less time than other farm funding options. You’ll usually hear back from your loan officer within a month or so which is a much quicker turnaround than federal grants or cost-share programs.  

If you’re looking for help completing an FSA application, try FarmRaise. Our team can apply you to FSA direct operating and ownership microloans. If you're not sure that FSA loans are right for you, our Funding Library holds a list of hundreds of other agricultural grants and loans. We’ll also send you alerts so you never miss a deadline about a funding opportunity you may qualify for. See how FarmRaise works and get support for your farm’s finances today!

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