Beginning Farmer Loans
USDA Loans For Beginning Farmers And Ranchers
The U.S. Department of Agriculture's (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers who are unable to obtain financing from commercial lenders. Each fiscal year, the Agency targets a portion of its direct and guaranteed farm ownership (FO) and operating loan (OL) funds to beginning farmers.
A beginning farmer is an individual or entity who (1) has not operated a farm for more than 10 years; (2) meets the loan eligibility requirements of the program to which he/she is applying; (3) substantially participates in the operation; and, (4) for FO purposes, does not own a farm greater than 30 percent of the median size farm in the county. (Note: all applicants for direct FO loans must have participated in the business operation of a farm for at least 3 years.)
If the applicant is an entity, all members must be related by blood or marriage, and all members in a corporation must be eligible beginning farmers.
Maximum Loan Amounts
Maximum loan amounts are:
- Direct FO or OL: $300,000; and
- Guaranteed FO or OL: $1,094,000 (Amount varies annually based on inflation).
FSA has a special loan program to assist socially disadvantaged and beginning farmers in purchasing a farm. Retiring farmers may use this program to transfer their land to future generations.
- The applicant must make a cash down payment of at least 5 percent of the purchase price.
- The maximum loan amount does not exceed 45 percent of the least of (a) the purchase price of the farm or ranch to be acquired; (b) the appraised value of the farm or ranch to be acquired; or (c) $500,000 (Note: This results in a maximum loan amount of $225,000).
- The term of the loan is 20 years. The interest rate is 4 percent below the direct FO rate, but not lower than 1.5 percent.
- The remaining balance may be obtained from a commercial lender or private party. FSA can provide up to a 95 percent guarantee if financing is obtained from a commercial lender. Participating lenders do not have to pay a guarantee fee.
- Financing from participating lenders must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.
Sale of Inventory Farmland
FSA advertises inventory property within 15 days of acquisition. Eligible SDA and beginning farmers are given first priority to purchase these properties at the appraised market value. If one or more eligible SDA or beginning farmer offers to purchase the same property in the first 135 days, the buyer is chosen randomly.
Joint Financing Arrangement
Beginning farmers may choose to participate in a joint financing arrangement. With this arrangement, FSA lends up to 50 percent of the amount financed, and another lender provides 50 percent or more. The interest rates can be obtained from your local FSA office and the term of the loan will not exceed 40 years or the useful life of the security.
Where to Apply
Applications for direct loan assistance may be submitted to the local FSA office serving the area where the operation is located. Local FSA offices are listed in the telephone directory under U.S. Government, Department of Agriculture or Farm Service Agency. For guaranteed loans, applicants must apply to a commercial lender who participates in the Guaranteed Loan Program. Contact your local FSA office for a list of participating lenders.
Further information about this and other FSA programs is available from local FSA offices or on the FSA website at: www.fsa.usda.gov.
IADA Loans For Beginning Farmers
Beginning Farmer Benefits
- Receives benefit of lower rate of interest on a loan
- Can obtain financing on machinery, equipment, breeding livestock, or land with low or moderate net worth
- Down payment negotiated with bond purchase (bank or contract seller)
- Can purchase from a closely related party, i.e., parents, grandparents, and siblings, only through a third party lender
- No restrictions on off-farm income
- May reapply and benefit from the program until all of $250,000 lifetime maximum has been used or purchased sizeable land tract
- Likely to establish a good credit ranking (rapport) with a lending institution/contract seller
- If eligible may be used in conjunction with down payment assistance through a Farm Service Agency (FSA) loan or Loan Participation Program (LPP) loan through the IADA when financed through a bank
- Easy to use application form
Further information about this and other IADA programs is available from local IADA offices or on the IADA website at: www.iada.state.ia.us.