Fact Sheet

Farm Loans

 October 2005

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1

Overview

The Farm Service Agency (FSA), an

agency of the U.S. Department of

Agriculture, makes and guarantees

loans to family farmers and

ranchers to purchase farmland and

finance agricultural production.

FSA maintains its headquarters in

Washington, D.C. Offices are

located in each state, usually in a

state capital or near a state landgrant university, as well as in most

agriculturally productive counties.

Farmers may apply for direct loans

at FSA local offices or USDA

Service Centers. Guaranteed loans

are available from local commercial

lenders who apply for loan

guarantees from FSA. Although

general information may be

obtained from headquarters and

state offices, all programs are

administered through local offices.

FSA Farm Loans

FSA’s loan programs are designed

to help family farmers who are

temporarily unable to obtain private,

commercial credit. In many cases,

these are beginning farmers who

have insufficient net worth to qualify

for commercial credit. In other

cases, they are farmers who have

suffered financial setbacks from

natural disasters, or who have

limited resources with which to

establish and maintain profitable

farming operations.

Some farmers obtain their credit

needs through the use of loan

guarantees. Under a guaranteed

loan, a local agricultural lender

makes and services the loan, and

FSA guarantees it against loss up to

a maximum of 90 percent in most

cases. In certain limited

circumstances, a 95-percent

guarantee is available. FSA has the

responsibility of approving all loan

guarantees and providing oversight

of lenders’ activities.

For those unable to qualify for a

loan guarantee from a commercial

lender, FSA also makes direct

loans, which are serviced by an

FSA official. FSA has the responsibility of providing credit counseling

and supervision to its direct borrowers by making a thorough assessment of the farming operation. The

Agency evaluates the adequacy of

the real estate and facilities, machinery and equipment, financial

and production management, and

the farmer’s goals. The weaknesses in all phases of the operation are identified and prioritized. An

FSA official then works one-on-one

with the farmer to develop a plan of

supervision that will help overcome

those weaknesses and ultimately

result in the farmer’s graduation to

commercial credit.

Unlike FSA’s commodity loans,

most farm loans must be fully

secured and can only be approved

for those who have repayment

ability.

Farm Ownership Loans

Eligible applicants may obtain direct

loans up to a maximum

indebtedness of $200,000.

Maximum indebtedness for

guaranteed loans is $852,000

(amount adjusted annually for

inflation). The maximum repayment

term is 40 years for both direct and

guaranteed farm ownership loans.

In general, loan funds may be used

to purchase farm real estate, to

enlarge an existing farm, to

construct new farm buildings and/or

improve structures, and to improve

the environmental soundness of the

farm.

Farm Ownership Down Payment

Loans

Eligible beginning farmer applicants

may obtain a direct loan for up to 40

percent of the purchase price of a

family-size farm, or the farm’s

appraised value, whichever is less.

Applicants must provide at least a

10 percent down payment on the

purchase. The interest rate on the

40 percent portion is fixed at 4

percent, and it must be repaid in 15

years or less. The remaining

balance may be guaranteed by FSA

if financed by an eligible lender. The

purchase price or appraised value

of the farm, whichever is lower, may

not exceed $250,000.
2

Fact Sheet

Farm Loans

Farm Operating Loans

Eligible applicants may obtain direct

loans for up to a maximum indebtedness of $200,000, and guaranteed loans for up to a maximum

indebtedness of $852,000 (amount

adjusted annually for inflation). The

repayment term may vary, but

typically it will not exceed 7 years

for intermediate-term purposes.

Annual operating loans are generally repaid within 12 months or

when the commodities produced

are sold. In general, loan funds

may be used for normal operating

expenses, machinery and equipment, real estate repairs and refinancing debt.

Emergency Loans

These loans are available only as

direct loans from FSA. Emergency

loans assist farmers who have

suffered physical or production

losses in areas declared by the

President as disaster areas or

designated by the Secretary of

Agriculture as disaster areas or

quarantine areas (for physical

losses only, the FSA Administrator

may authorize Emergency Loan

assistance). For production loss

loans, applicants must demonstrate

a 30-percent loss in a single farming or ranching enterprise. Applicants may receive loans up to 100

percent of production or physical

losses. Loan purposes include

both operating and real estate, and

repayment terms, depending on the

loan purpose and type of collateral

securing the loan. The maximum

indebtedness under the emergency

loan program is $500,000.

Rural Youth Loans

amount of $5,000. Rural youth

loans may be made to individuals

who are sponsored by a project

advisor, such as a 4-H Club, FFA or

local vocational instructor. Individuals must be at least 10 but not more

than 20 years old to be eligible.

Targeted Funds to Beginning

Farmers

Each year Congress targets a

percentage of farm ownership and

farm operating loan funds to beginning farmers. Beginning farmers

must have been in the business

fewer than 10 years and meet

certain other requirements.

Loan Servicing and Supervised

Credit

FSA’s mission is not limited to

providing just credit — it is to provide supervised credit. This means

that FSA works with each borrower

to identify specific strengths and

weaknesses in farm production and

management, then works with the

borrower on alternatives and other

options to address the weaknesses

and achieve success. Effective

supervised credit is the difference

between success and failure for

many farm families.

To help keep borrowers on the farm,

FSA may be able to provide certain

loan servicing benefits to borrowers

whose accounts are distressed or

delinquent due to circumstances

beyond their control. These benefits include:

■ Reamortization, restructuring

and/or deferral of loans;

■ Rescheduling at the Limited

Resource (lower interest) rate;

■ Acceptance of conservation

contracts on environmentally

sensitive land in exchange for

reduction of debt; and

■ Writing down the debt to its

current market value (delinquent

borrowers only).

If none of these options results in a

feasible farming operation, borrowers may be offered the opportunity

to purchase their debt at its current

market value. If this is not possible,

other options include:

■ Debt settlement based on

inability to repay. In some

cases, where a successful plan

of operation cannot be developed, FSA works with the

borrower to help him or her

retain the homestead and up to

10 acres of land.

■ Farms that come into FSA

ownership are sold at market

value, with a preference to

beginning farmers and ranchers.

The eventual goal of FSA’s farm

loan programs is to graduate its

borrowers to commercial credit.

Once a farmer is able to obtain

credit from the commercial lending

sector, the Agency’s mission of

providing temporary, supervised

credit is complete.

Additional information may be

obtained at local FSA offices or

through the FSA website at

www.fsa.usda.gov.

These are available as direct loans

only and have a maximum loan

The United States Department of Agriculture

(USDA) prohibits discrimination in all its

programs and activities on the basis of race,

color, national origin, sex, religion, age, disability,

political beliefs, sexual orientation, or marital or

family status. (Not all prohibited bases apply to

all programs.) Persons with disabilities who

require alternative means for communication of

program information (Braille, large print,

audiotape, etc.) should contact USDA’s TARGET

Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA,

Director, Office of Civil Rights, Room 326-W,

Whitten Building, 1400 Independence Avenue,

SW, Washington, DC 20250-9410 or call (202)

720-5964 (voice and TDD). USDA is an equal

opportunity provider and employer.