Are you looking to buy farmland to start an agricultural operation or expand your existing farm to increase capacity? The Farm Service Agency’s (FSA) Direct Farm Ownership Loans offer up to 100% financing, making it easier for farmers to take the next step in their business.
Whether you want to purchase a new farm, boost production, or simply improve your current operation with new technologies, these loans are designed to help you succeed.
While they’re designed to assist a wide range of agricultural operations, these farm loans are particularly popular with family farms (where the family provides the majority of labor and management).
With FSA’s Direct Farm Ownership Loans, you can preserve your farmland for future generations and protect your legacy.
For what purposes can you use these farm loans?
What makes FSA’s Direct Farm Ownership Loans so appealing is that you can use them to improve your farm. Do you need to buy a new farm or grow your existing one? Covered.
Do you want to make a down payment on new land or even pay for closing costs? You can do that, too. Perhaps you need to build or upgrade farm structures or protect your soil and water resources.
With this farmland loan, you can make the changes that impact your operations most.
What are the different types of Direct Farm Ownership Loans?
These farm loans come in different types to fit different needs. Aside from regular loans, FSA offers joint financing loans, down payment loans for beginners, and even microloans for more minor financial needs. Let’s dive into these three unique financing solutions:
1. Joint financing farm loans
The Direct Farm Ownership, Joint Financing Loan, is a participation loan that splits costs between FSA and another lender.
FSA can finance up to 50% of the property’s value; the rest is covered by a commercial lender, a state program, or even the seller. In some cases, the FSA will guarantee this additional financing.
2. Down payment farm loans
Are you a beginning farmer or rancher, or a minority or woman applicant? FSA’s Down Payment Loan can help you buy a family-sized farm.
Unlike other farm loans, this requires you to bring at least 5% of the farm’s purchase price as a down payment.
There’s also a rule about farm size: You can’t own more than 30% of the average-sized farm in your area at the time of your application. This keeps the program focused on helping true beginners get their start in farming.
3. Microloans
Are you a small farmer or operating a niche/non-traditional farm? Microloans are explicitly designed to support the financing needs of:
- Direct-to-consumer farms (farmers’ markets, CSAs)
- Truck farms
- Innovative farms (hydroponics, aquaponics, organic, vertical farming)
- Specialty farms (restaurants, grocery stores)
If your farm fits into one of these categories, a microloan can provide the funding you need to grow.
What is the maximum loan amount?
The limit for regular Direct Farm Ownership Loans is $600,000. The same applies to Joint Financing Loans.
For Down Payment Loans, FSA will finance up to 45% of the lesser amount between the farm’s purchase price and appraised value, with a maximum loan limit of $667,000.
You’ll need to cover the rest with additional financing from a commercial lender or the seller. If you need more security, an FSA guarantee might be available to back up your other loans.
Local farm Loan Officers and Managers handle the loan process. The funds come directly from congressional appropriations within the USDA budget.
What are the interest rates of these farm loans?
FSA keeps things straightforward when it comes to interest rates. They charge the lower interest rate in effect at the time of loan approval or when the loan is closed, whichever benefits you more. These rates are updated at the beginning of each month.
What are the payment terms?
For Direct Farm Ownership and Joint Financing loans, you have 40 years to settle the loan. This extended repayment period aims to make it easier for you to manage your finances while growing your farm.
For the Down Payment Loan, you have up to 20 years to repay FSA’s portion of the loan, but the rest of the financing — usually from a commercial lender or the seller — must have a repayment term of at least 30 years.
Note that balloon payments are NOT allowed during the first 20 years. The point of this setup is to give you stability, knowing your payments won’t suddenly spike.
Eligibility requirements
To qualify for a Direct Farm Ownership loan, you need to meet three sets of criteria:
- The farm must be an eligible enterprise.
- You must meet general eligibility requirements.
- You need sufficient farm management experience.
- First, your operation needs to be a legitimate farm enterprise. The FSA won’t approve loans for non-farm activities like raising exotic birds or pets unrelated to farming.
- Then, there’s a checklist of general eligibility requirements. You need a clean legal record (no federal or state convictions related to controlled substances), a legal ability to accept responsibility for the loan, and a solid credit history. You must also be a US citizen or legal resident.
- Applicants can’t have prior debt forgiveness from FSA (like guarantee loan loss payments), and you must prove you can’t secure enough credit from other sources, even with an FSA guarantee.
- Lastly, you can’t be behind on any federal debt, except for IRS tax debt, and you must comply with Federal Crop Insurance guidelines. Once you close the loan, you’ll also need to be the owner-operator of the farm.
Farm management experience is required.
FSA wants to ensure you’re prepared to manage a farm successfully, so they only accept applications from people with at least three years of farm management experience within the last ten years.
Education, hands-on training, and general farm work can be counted towards this requirement.
Do you have a post-secondary degree in an agriculture-related field, significant business management experience, or leadership experience in the military? You can substitute one year of that farm management requirement.
Can you get these farm loans with a bad credit score?
Yes. One of the most significant benefits of applying for an FSA loan is that your credit score isn’t the deciding factor. Instead, FSA looks at your repayment history with other creditors, including the federal government.
A few slow payments here and there or a lack of credit history won’t immediately disqualify you, especially if any issues were temporary or beyond your control.
Get more technical information.
Applying for a Direct Farm Ownership Loan can quickly become overwhelming, especially for first-timers. The good news is that the FSA put together a booklet called Your Guide to FSA Farm Loans, which covers a lot of ground.
Do you need more personalized help? You can also schedule an appointment with your local Farm Loan Officer or Manager.
They’ll guide you through completing forms and gathering the correct information for your application. If you run into eligibility issues, they’ll work with you to explore alternatives so you can move forward.
Preparing for your first meeting with an FSA Farm Loan Officer
To increase your chances of getting approved for a farm loan, come prepared before you sit down with a Farm Loan Officer. You need a clear idea of your goals and what type of farm operation you want to run.
Consider what you need to get your farm or ranch up and running and how you plan to sell your products. Do you need a loan to buy land, equipment, or both? Be specific about how much financing you’re seeking.
Find time to sort out your records before applying for a loan. Keep your income and expenses organized and ready to show.
Your household expenses are just as necessary as your business ones when calculating your financial needs, so it doesn’t hurt to bring detailed records to the meeting. This will help demonstrate your ability to manage finances effectively.
If your financial or production records aren’t perfect, no worries — that’s okay. However, be realistic in your farm business plan.
If you expect higher-than-average prices or yields, be ready to back up those numbers with solid evidence. FSA will expect you to explain how you came up with your projections.
Also, bring your tax returns from the last three years when you met with the Farm Loan Officer. And if you have off-farm income, bring your recent pay stubs to help the Loan Officer see your full financial picture. Don’t forget your latest credit card statements as well.
The key to getting approved for a Direct Farm Ownership Loan is to bring documentation that shows your commitment — this could be a signed purchase option or a contract to buy the farm.
If you’re leasing any land or equipment, include those written leases. This shows you’ve done your homework and are ready to move forward with the process.
Other farm loans available from Private Capital Investors
Try private lenders if you need a loan bigger than FSA’s Direct Farm Ownership Loan limit. At Private Capital Investors, our team of stated income commercial lenders offer farm loans specifically designed for more extensive operations.
Borrow between $3 million and $50 million with a 30-year amortization and no prepayment penalties. Find out more here.
