Last Updated January 26, 2010
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 against potential loss 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 intended to assist farmers with low production or who suffered the effects of a natural disaster or adverse economic conditions get through a difficult period and become financially viable.
- 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 guarantee.
- 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 after receipt of a complete application.
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
- Have a satisfactory credit history, demonstrate repayment ability, and provide sufficient security
- Have not had a previous Direct or Guaranteed Loan that resulted in a loss to FSA and not be delinquent on any federal debt, including outstanding recorded Federal judgments
- Be unable to obtain sufficient credit elsewhere with or without a guarantee at reasonable rates and terms to finance needs
- 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 and cooperative stock for credit, production, processing, and marketing purposes
- Real estate improvements that can be repaid within 7 years
- Payment of annual operating expenses, processing or marketing purposes
- Payment of costs for land and water development for conservation of use purposes
- Payment of loan closing costs
- Payment of other farm and home needs
- Refinancing of debt incurred for any authorized OL purpose, when the lender and applicant can demonstrate the need to refinance
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 incurred for authorized FO or OL purposes, provided the need for refinancing can be demonstrated
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.