USDA farm loans help farmers start their farming business. The guaranteed loan works much the same way as a residential USDA guaranteed loan. The applicant applies for a loan with a bank. The bank then works with the USDA to confirm eligibility. If the USDA confirms the loan is eligible for a guarantee, the lender funds it. The USDA then provides the lender with a guarantee if you were to default on the loan. The USDA and FSA guarantee most loans for up to 95% of the loan amount.
The USDA guaranteed farm loan is for loans up to $1,399,000. It helps farmers get started on their farm ownership or operations. All work that you do is with the lender. The lender is the customer of the Farm Service Agency. You complete your application and provide the proper documents directly to the lender. After they underwrite the loan and determine your eligibility, they forward everything onto the USDA. Once the USDA approves the loan, the lender may close it. It is then that the USDA/FSA creates the guarantee for the lender. If you only need a small loan, you may qualify for the EZ Guarantee Loan, which allows loan amounts up to $100,000.
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Types of Loans
There are several types of farm financing loans you may qualify to receive. The most common include:
- Farm ownership – These funds help you purchase a farm. They may also help you build onto an existing farm.
- Operating loans – These funds help you build up the operations of your farm. You might purchase livestock or equipment. You may also use the funds to repair your farm.
- Emergency loans – If your farm experienced any type of natural disaster, these funds can help you repair the damage. The funds may help directly with the repairs or help you with living expenses as you repair the damage.
Qualifying for the Farm Guaranteed Loan
Qualifying for the guaranteed farm loan is as simple as it is to qualify for a USDA residential loan. Applicants must be a resident of the United States. If you are not a permanent resident, you must be a legal resident alien. You must also have proper credit history. If you do not have an actual credit score, you can inquire about the use of alternative credit sources. Some lenders may allow proof of timely payments of things like utilities, rent, and insurance. You will usually need at least a 12-month history of 3 accounts to serve as alternative credit.
You must also prove that you cannot secure farm financing from any other source. Guaranteed financing from the USDA uses government funds. The FSA reserves these funds for those who need it the most. If you can secure farm financing elsewhere, you would not be eligible for the guaranteed program.
If you are not a first time farm owner, you must not have been the cause of a Farm Service Agency default more than 3 times before April 4, 1996 or after April 4, 1996. This pertains to any FSA loan, whether guaranteed or direct. You must also be current on any federal debts.
Lastly, you must own and/or operate the farm you use the loan to purchase. If you take out an operating loan, you must prove you will be the operator of the farm. If you take out the loan as the farm owner, you must prove you will own the farm yourself.
Qualifying the Farm
Not every farm qualifies for the FSA guaranteed loan. Before you apply for the loan, you can determine your farm’s status with the following:
- Do you or your family provide a majority of the operations on the farm?
- Do you or your family make a majority of the operational decisions on the farm? This does not mean you can’t use outsiders as help in the decision making, but you must ultimately make the decisions.
- Is your farm employed with mostly family members?
Repaying the Farm Loan
The type of guaranteed loan you take out will determine your repayment period. Generally, the following apply:
- Operating loans usually have a term of up to 7 years
- Farm ownership loans usually have terms of up to 40 years
Different lenders offer different terms and repayment periods. Shopping around can help you find the lender with the right options for you.
USDA guaranteed farm loans help farmers start their careers. Whether you need a small, $100,000 loan or a $1,000,000 loan, the guaranteed loan can help. If you are unable to secure any other type of farm financing, the USDA may help you. The lender you choose will work with the USDA/FSA to secure the guarantee. This way you can close on your loan and the USDA has the insurance of the USDA’s guarantee.