Guaranteed Farm Ownership and Operating Loans

Offering federally guaranteed loans for family farmers for farm ownership, farm operation, and the purchase of stock in cooperatives

The purpose of the Farm Service Agency's (FSA) guaranteed farm ownership (FO) and guaranteed operating loan (OL) programs is to help family farmers obtain commercial credit to establish or maintain a family farm or ranch. FSA guarantees the repayment of the commercial loan at 90 percent of the loss of principal and interest. A 95 percent guarantee is provided in the case of loans to refinance an existing direct FO or OL or for loans made in conjunction with a beginning farmer down payment loan.

Farmers may also use FSA guaranteed loans to buy stock in a member-owned cooperative. The cooperative can be engaged in production, processing, packaging, and/or marketing of agricultural and forest products.

In some instances, a special interest rate assistance program may be used in which FSA provides assistance to the lender to lower the interest rate. The interest assistance is designed in part to assist direct loan borrowers graduate to commercial credit.

Project Examples

A beginning farmer working with a bank in Iowa obtained a 95-percent loan guarantee for an ownership loan and operating loan made in conjunction with an FSA down payment loan, enabling the bank to make a loan it would not have without the federal participation.
A rancher in California used an FSA guaranteed loan to buy stock in a newly formed marketing cooperative that processes and sells specially raised beef to Japan.
A commercial lender in Ohio obtained an FSA guarantee on an operating loan to a farmer who will use integrated pest management (IPM) on a new agricultural enterprise. The guarantee was important to the lender, who was unfamiliar with IPM.

Application and Financial Information
Applicants apply for agricultural loans as they normally would with local commercial lenders that make agricultural loans in their community. The lender analyzes the farm customer's business plan and financial condition.

If the farm loan proposal looks realistic, is financially feasible, and there is sufficient collateral, but it cannot be approved because it does not meet the lending institution's loan underwriting standards, the lender may apply for an FSA loan guarantee.

In some cases, applicants may seek an FSA direct loan first, but a guaranteed loan must always be considered before a direct loan can be provided. Once an applicant provides all the financial and organizational information to the lender, the lender submits a guaranteed loan application to the local FSA office and the request will be approved or disapproved within 30 days.

The number of guaranteed loans that FSA can provide each year varies depending on the demand for loan guarantees and the amount of guarantee authority appropriated by Congress.

Eligibility, Uses, and Restrictions
To qualify for an FSA Guarantee, a loan applicant must:

Be a citizen of the United States (or legal resident alien), which includes Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories
Have the legal capacity to incur the obligations of the loan and provide sufficient security
Have a satisfactory credit history and demonstrate repayment ability
Have not had a previous Direct or Guaranteed Loan that resulted in a loss to FSA and not be delinquent on any federal debt
Be unable to obtain sufficient credit elsewhere at reasonable rates and terms to finance needs
For a guaranteed FO, must be the operator of a family farm after the loan is closed. For an FO, the producer needs to also own the farm

For guaranteed OL loans, authorized purposes include:

Payment of costs associated with reorganizing a farm to improve its profitability
Purchase of livestock, equipment, quotas, and bases
Cooperative stock for credit, production, processing, and marketing purposes
Payment of annual operating expenses
Payment of costs for land and water development for conservation or use purposes
Payment of loan closing costs
Payment of other farm and home needs
Refinancing of debt subject to certain restrictions

For guaranteed FO loans, authorized purposes include:

Acquiring or enlarging a farm
Making capital improvements
Promoting soil and water conservation and protection
Paying of loan closing costs
Refinancing debt

Contact
FSA is organized on a national, state, and county basis. However, guaranteed applications are accepted and processed only in county offices. Individuals should contact an agricultural lender but may also contact the nearest FSA county 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 Ave., SW, Stop 0522
Washington DC 20250-0522
Phone: (202) 720-1632; Fax: (202) 720-6797

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

Last Updated February 1, 2007