Farm Loans: FSA Loans and Other Financing Options for Farms

2020-11-17

Stephanie Mladenoski

Farmers are an essential part of the United States economy and American life, providing food and essential supplies to millions of U.S. residents. Farms often operate on tight margins while trying to provide food at a price that American retailers and consumers are able and willing to pay. Unfortunately, this can make it difficult to start, grow or expand your farm without an external infusion of capital for equipment, real estate, land leases or other expenses. Luckily, the USDA and other lenders have options for funding, whether you run a small family farm or a commercial farm or ranch.

FSA Loans

The Farm Service Agency (FSA) is the part of the U.S. Department of Agriculture (USDA) that provides farm loan programs to U.S. farmers. Each program is designed to support farm operating and growth business needs. The FSA only provides loans to farmers who do not qualify for commercial credit from other lenders.

Farm Ownership Loans

Farm ownership loans from the FSA help you purchase or expand a farm. These loans can be used to buy land, build new barns or other structures on the land, repair older structures and pay for loan closing costs. If you are considering making a much-needed expansion of your farm or ranch, or are looking to purchase a farm in the first place, a farm ownership loan may be right for you.

Farm ownership loans are great for beginning farmers who need an infusion of cash in order to start a farm. The maximum loan amount for direct farm ownership loans is $300,000 and loan repayment terms can be up to 40 years.

Farm Operating Loans

Farm operating loans are flexible loans that can be used for a variety of farm-related operating expenses. Operating loans can be used to purchase livestock or seed, or to fund the purchase of equipment, like a tractor or milking machine. Farm operating loans can also be used to help you meet basic living expenses while starting or expanding a farm. These loans are specifically designed with flexibility to meet the needs of family farmers and ranchers.

Direct operating loans are available for up to $300,000 and terms of one to seven years.

Emergency Farm Loans

Unfortunately, farms are particularly susceptible to the effects of nature and natural disasters. If your crops or livestock were damaged or destroyed by a drought, flood, tornado, hurricane or other natural disaster, FSA emergency farm loans can help you to get back on your feet. Emergency loans can only be issued if your farm location is in a declared state of an emergency by the Secretary of Agriculture or the President.

Other FSA Loans

There are other FSA loan programs for specific circumstances, especially for women, children and minorities. To promote agricultural careers in new generations, the FSA issues loans for youth who are involved in educational agricultural activities. The FSA also has specific loans to help Native Americans acquire and farm land on tribal reservations.

In addition, the FSA specifically directs a portion of funding to women- and minority-owned farms. To be considered for these loans, you must self-select your race, gender and/or ethnicity on a farm ownership or farm operating loan.

Direct vs. Guaranteed FSA Loans

FSA loans are available either as direct loans from the FSA or through USDA-approved alternative lenders. If you apply through an approved lender, rather than directly through the FSA, your loan is a guaranteed loan rather than a direct loan. That simply means that your loan is backed by the FSA, but the capital comes from your lender. The FSA guarantee helps your lender provide lower interest rates and better loan terms because the government is assuming responsibility for the loan.

For example, if you get a direct farm ownership loan, the loan will come directly from the FSA and will be serviced by the government. If you get a guaranteed farm ownership loan, you will apply for your loan through another lender and you will repay that lender.

Other Farm Loan Options

Even though FSA loans are specifically designed for borrowers with smaller size farms and ranches, you may find a better financing option from another commercial lender. Here are some other agricultural loans and funding options to consider if your farm is too large to meet FSA eligibility requirements or if you would prefer an alternate loan.

Equipment Loans

It’s no secret that farming operations require a lot of equipment. If purchasing new equipment is turning into a roadblock for your farm, equipment financing may be the right option for you. Because the equipment itself is used as collateral for your loan, it can sometimes be easier to qualify for an equipment loan than an unsecured loan

Microloans

Microloans are simply smaller loans, typically for less than $50,000. If you just need a small amount of capital to make ends meet or upgrade your farm, a microloan may be a good option for your farm or ranch. The FSA does issue microloans for farms and ranches, or you can get microloans from the SBA or other lenders.

Line of Credit

A line of credit is a financing option that many business owners appreciate for its flexibility, both in the loan amount and in repayment. A line of credit may be the best option for you if you aren’t sure how much capital you will need. Unlike term loans, you simply use a line of credit as you need it and are only obligated to pay back the amount that you use. Lines of credit are available through traditional and alternative lenders.

Working Capital Loan

A working capital loan is a term loan that you can use to pay for any of your business operating needs. A working capital loan may be right for you if you need short-term financing to meet business obligations or increase cash flow. Working capital loans are unsecured loans, which means that you do not need collateral to qualify for the loan.

How to Apply for a Farm Loan

If you are interested in a loan for your farm or ranch, you first need to choose between a direct FSA loan, a guaranteed FSA loan or an alternative loan option. If you choose to apply directly through the FSA, you can view your loan options on the FSA website and download a loan application and instructions. If you have questions about applying directly for an FSA loan or finding an FSA lender, contact your local FSA office for assistance or additional information.

If you are interested in an alternative loan, such as an equipment loan or working capital loan, you can research lender terms, fees and interest rates online or by contacting the lender. Each lender and loan will likely have a different process. If you aren’t sure what loan might be best for your farm, use the Farmers.gov Loan Discovery Tool to examine your options.

USDA Service Centers are open by appointment during COVID-19 and loan officers and USDA employees are still available to help answer your questions and provide the funding your farm needs. In addition, the FSA is accepting Coronavirus Food Assistance Program 2 applications through December 11, 2020. The assistance program can help to compensate you for losses caused by market disruptions during the pandemic.

 

Author:

Jeffrey Bumbales
Director, Marketing & Strategic Partnerships at Credibly