Last week on the Beginning Farmer Forum, we discussed why microloans are a compelling alternative to traditional loans for beginning farmers and ranchers. However, for some producers, more traditional Farm Service Agency (FSA) loans may make sense. FSA offers a number of loan options, including direct farm operating loans and direct farm ownership loans, made from FSA to farmer borrowers, and guaranteed farm loans that are handled through private lenders. Direct loans, and particularly direct farm operating loans, may be more accessible to beginning producers, as they are available to those with lower income and do not require extensive farm experience or outstanding credit scores.
How are operating and ownership loans different? For one, they’re used for different purposes. Ownership loans are typically used to obtain land and buildings for a farm operation, enlarge an existing operation, purchase easements, and promote conservation efforts, whereas operating loans finance the smaller costs of operating a farm, including inputs, livestock, cash rent, family living expenses, and under certain circumstances, the initial processing of agricultural commodities.
The managerial experience requirements for ownership loans are more restrictive than for operating loans. Operating loan applicants must show FSA demonstration of “managerial ability,” which is determined on a case-by-case basis, depending on the complexity of the operation and the monetary amount requested. Ownership loans require both more, and more specific, managerial experience.
The limit for both operation and ownership loans maxes out at $300,000, and applicants must be unable to obtain credit elsewhere. While FSA does not use credit scores, all applicants are expected to provide acceptable repayment history with other creditors. Occasional missed payments or lack of a credit history does not automatically disqualify the loan applicant.
The terms of repayment vary by loan type and amount. Ownership loans’ maximum repayment period is 40 years – much longer than most operating loans. For example, general operating and family living expenses are typically due within 12 months or when the agricultural commodities sell. However, larger purchases such as equipment, minor repairs, or livestock have a maximum term of 7 years.
FSA must inform applicants if an application is incomplete within 10 days of receipt. The Agency must decide whether or not to make the loan within 60 days of receiving all necessary documentation.
Interested farmers can check current interest rates for FSA direct loans here.
Have you visited your FSA county office to discuss lending options? If so, was a Direct Operating Loan recommended to you? Please share your thoughts and experiences in the comments below.