Direct Farm Ownership and Operating Loans

Offering government loans to family farmers and ranchers for farm ownership and operating purposes

The purpose of the Farm Service Agency's (FSA) direct farm ownership (FO) and operating loan (OL) programs is to provide financing and assistance to family farmers and ranchers to establish farms and ranches, achieve financial success, and graduate to commercial credit or self-financing.

FSA has various tools to assist family farmers, including low interest rates and individualized credit counseling and supervision. Emphasis is placed on assisting beginning, minority, and other limited-resource family farmers.

Project Examples

A beginning farmer in Illinois obtained a 4-percent FSA down payment loan for 40 percent of the purchase price of a farm, put up 10 percent of the purchase price, and received a low-interest loan from the Illinois beginning farmers "Aggie Bond" program for the remaining 50 percent.
A farmer in Kentucky obtained an FSA operating loan to partially shift production out of a traditional yet unprofitable cropping pattern and into an alternative enterprise for which there was a specialized local market.
A Mississippi farmer used an FSA operating loan 5-year line of credit to purchase inputs required to produce row crops and livestock, and a 7-year loan to purchase machinery.
An Idaho farmer received an FSA farm ownership loan to finance the establishment of buffer strips along a creek running through the farm.

Application and Financial Information
Applicants must apply for direct loan assistance at an FSA county office or USDA Service Center. FSA officials will meet with the applicant to assess all aspects of the proposed or existing farming or ranching operation to determine if the applicant meets the eligibility requirements. Local FSA County Committees will advise FSA loan officials on local agricultural practices, production conditions, and loan applicants.

Once FSA receives all the financial and organizational information, the applicant will be notified as to whether the loan has been approved. The loan recipient must meet certain eligibility requirements, request funds for authorized purposes, be able to repay and to provide enough collateral to secure the loan on at least a dollar-for-dollar basis, and enroll in a borrower training program.

The number of direct and guaranteed operating loans that FSA can make each year may vary, depending on the demand for such loans and the amount of funds appropriated by Congress.

Eligibility, Uses, and Restrictions
Eligible borrowers must be U.S. citizens, be unable to obtain credit through commercial sources, have sufficient training or experience, have an acceptable credit history, be or plan to become owners or operators of family-sized farms, and be able to demonstrate the need to maximize income from farming. In addition, applicants requesting direct FO assistance must have participated in the business operations of a farm or ranch for at least 3 of the last 10 years.

An applicant who applies for FO assistance must be a beginning farmer or one who has either never received an FO or has received FO assistance not more than 10 years before the date of the proposed loan. An applicant who applies for OL assistance must be a beginning farmer or one who has never received OL assistance or received OL assistance not more than 6 years before the date of the proposed loan.

FO loans may be used for acquiring or enlarging a farm or ranch, making capital improvements, paying closing costs, and paying for soil and water conservation improvements, including sustainable agriculture practices and systems.

OLs may be used to pay the costs of reorganizing a farm or ranch, buy livestock or equipment, buy supplies, finance conservation costs, pay closing costs, comply with requirements under the Occupational Safety and Health Act of 1970, pay tuition for borrower training classes, refinance indebtedness under certain conditions, and provide farm and family living expenses.

OLs are generally for 1 year, except for equipment loans, which are generally 7 years. Standard FO loans may be made up to 40 years, except for special beginning—farmer down payment loans, which are 30-year loans that balloon after 10 years, leading to refinancing as commercial loans. Interest rates are at the government's cost of funds for regular loans, one-half cost of money plus 1 percent for certain limited-resource borrowers, and 4 percent for down payment loans. Loans may be made for up to $200,000.

A portion of available loan funds are reserved for minority farmers and beginning farmers. "Beginning farmer" is defined in part as an applicant who has not operated a farm or ranch for more than 10 years. For beginning farmer ownership loans, borrowers may not already own acreage exceeding 30 percent of the median acreage for farms in the county. For the beginning farmer down payment loan program, borrowers put up 10 percent of the cost of the purchase, FSA finances 40 percent for 10 years at 4 percent interest, and the rest of the financial package is owner-financed or from commercial sources, including those made through special state beginning farmer programs available in many states.

Contact
FSA is organized on a national, state, and county basis. Applicants apply directly through local FSA county offices or USDA Service Centers. Individuals can locate the nearest FSA office by checking in the telephone white pages under U.S. Government, Department of Agriculture, Farm Service Agency.

James F. Radintz, Director
National Program Office
Farm Service Agency
Farm Loan Programs Loan Making Division
14th & Independence Avenue, SW, Stop 0522
Washington DC 20250-0522
Phone: (202) 720-1632; Fax: (202) 720-6797

Internet
www.fsa.usda.gov/dafl/directloans.htm

Last Updated February 1, 2007