Last Updated January 26, 2010
Loans for Socially Disadvantaged Persons
Providing farm purchase and operating loans targeting socially disadvantaged groups
The Farm Service Agency (FSA) makes direct and guarantee loans to socially disadvantaged applicants to buy and operate family-size farms and ranches. Each fiscal year the Agency targets a portion of its direct and guaranteed farm ownership (FO) and operating loan (OL) funds to SDA farmers. Non-reserved funds can also be used by SDA persons.
A socially disadvantaged farmer or rancher is one of a group whose members have been subjected to racial, ethnic, or gender prejudice because of their identity as members of the group without regard to their individual qualities. For purposes of this program, socially disadvantaged groups are women, African Americans, American Indians, Alaskan Natives, Hispanics, Asians, Native Hawaiians and Pacific Islanders.
The purposes of the program are to:
- Help remove barriers that prevent full participation of SDA farmers in FSA's farm loan programs; and
- Provide information and assistance to SDA farmers to help develop sound farm management practices, analyzing problems, and plan the best use of available resources essential for success in farming or ranching.
In fiscal year 2008, the obligations incurred for Socially Disadvantaged loans exceeded $88 million and $78 million for direct and guaranteed operating loans (OL), respectively. Loan obligations exceeded $56 million and $156 million for direct and guaranteed farm ownership (FO) loans, respectively.
Application and Financial Information
Direct loans are made to applicants by FSA and include both OL and FO loans.
Guaranteed loans also may be made for ownership or operating purposes. They may be made by any lending institution subject to federal or state supervision (banks, savings and loans, insurance companies, and units of the Farm Credit System including the Bank for Cooperatives) and are guaranteed by FSA. Some state governments also operate farm loan programs that are eligible for FSA guarantees. Typically, FSA guarantees 90 or 95 percent of a loan against any loss that might be incurred if the loan fails.
Repayment terms for direct OL loans usually run from 1 to 7 years depending on the collateral securing the loan and the applicant's ability to repay. Repayment terms for direct FO loans vary and never exceeds 40 years.
Guaranteed loan terms are set by the lender. Interest rates for direct loans are set monthly according to the government's cost of borrowing. Interest rates for guaranteed loans are established by the lender.
Eligibility, Uses, and Restrictions
Eligible applicants include individuals, partnerships, joint operations, corporations, and cooperatives primarily and directly engaged in farming and ranching on family-size operations. A family-size farm is considered to be one that produces an agricultural product in a quantity sufficient enough to be recognized as a farm rather than a rural residence.
In addition to being members of a socially disadvantaged group, individual applicants under this program must meet all requirements for FSA's regular farm loan program assistance. To be eligible, an applicant must, among other requirements:
- Have a satisfactory history of meeting credit obligations
- Have sufficient education, training, or experience for at least 1 year's full production cycle in managing or operating a farm or ranch. For a direct FO loan, applicants must have participated in the business operations of a farm or ranch for at least 3 of the past 10 years
- Be a citizen of the United States (or a legal resident alien), including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Island Trust Territories
- Be unable to obtain credit elsewhere with or without an FSA guarantee at reasonable rates and terms to meet actual needs
- Possess the legal capacity to incur the obligations of the loan
In the case of corporations, cooperatives, joint operations, or partnerships, the stockholders, members, or partners holding a majority interest must meet these same eligibility requirements. The borrowing entity must be authorized to operate a farm or ranch in the state where the actual operation is located.
In addition, the entity must be owned by U.S. citizens or legal resident aliens, and the socially disadvantaged members must hold a majority interest in the entity.
FO loan funds may be used to purchase or enlarge a farm or ranch, purchase easements or rights of way needed in the farm's operation, erect or improve buildings such as a dwelling or barn, promote soil and water conservation and development, and pay closing costs.
OL funds may be used to purchase livestock, poultry, farm equipment, fertilizer, and other materials necessary to operate a successful farm. OL funds can also be used for family living expenses, refinancing debts under certain conditions, paying salaries of hired farm laborers, costs associated with land and water development, use or conservation, purchase of livestock and farm equipment, annual operating expenses such as seed and fertilizer, costs aassociated with reorganizing a farm to improve profitability, and other farm needs.
FSA is organized on a national, state and county basis. Applicants for direct loans apply directly through the county or USDA Service Center. Individuals can locate the nearest FSA office by checking in the telephone white pages under U.S. Government, Department of Agriculture, and Farm Service Agency.
Guaranteed loan applications are made with the lender. In cases where a lender is not known to an applicant, personnel at the county office will help find one and will help with an application, either for a direct loan or a guaranteed loan.
James F. Radintz, Director
National Program Office
Farm Service Agency
Phone: (202) 720-1632