Your 2-minute briefing on USDA Farm Loans

May 25, 2021

The USDA’s Farm Service Agency (FSA) lends billions of dollars to farmers every year.  And they do this at attractively low interest rates – the current cost of a direct ownership loan is 2.8% and a direct operating loans comes in at 1.4%.  Those are nice rates.

The FSA serves farmer borrowers in two ways:

  1. Direct ownership and operating loans = farmer borrows money directly from the FSA.
  2. Guaranteeing loans issued by other banks = farmer borrows money from the bank, the FSA repays the bank if the farmer fails to repay the loan. To find out more ask your local ag lender.

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 can be used to:

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

There are sub-categories of these direct loans such as the Beginning Farmer Loan, Native American Loans, Microloans, Minority and Women Farmers and Rancher Loans, and Emergency Farm Loans.  Think of these as pots of money set aside for specific use by a specific group of for a specific circumstance.

Whatever the loan is called, the FSA determines your eligibility for a loan in the same way: by analyzing your farm’s cashflows 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.

To apply for these loans, you must show proof of loan application rejection from a commercial lender, like Farm Credit.  The FSA is the ‘lender of last resort’, meaning they support farmers that cannot get loans anywhere else.

The application itself requires 9 forms. Be sure to double-check your work before submitting, and keep in mind that FarmRaise can also help you navigate this application process. You can learn more about how we partner with farmers here.

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