Starting a farm costs money. If you do not have the funds or the means to get it outside of the help of the USDA, consider a direct farm loan. The loans are provided by the Farm Service Agency, a subsidiary of the USDA. These loans are a form of temporary financing to help you start your farm. It is the hope of the USDA that you will get on your feet and be able to qualify for commercial financing down the road. Once you qualify for commercial financing, you can close out your loan with the USDA and move on with your farm.
What are Direct Loans?
Direct loans are funds that come directly from the FSA. In other words, it is government money. The money does not come from a lender. FSA loans that come from a lender are guaranteed farm loans. With direct loans, the FSA handles the entire process. They also provide you with credit counseling to help you get on your feet. Their goal is to help you secure commercial financing down the road. Again, the direct financing is meant to be a temporary fix to help you get started.
Types of Loans
Starting a farm often means more than just buying the farm itself. In addition to the purchase, you may use the funds for operations and emergencies:
- Purchase – You may use the funds to purchase a farm or fixing up an existing farm
- Operations – You may use the funds to purchase equipment or livestock to make the farm profitable.
- Emergencies – If you need funds to restore a farm’s operations, you can the loan for an emergency situation
The different farm loan types offer different loan amounts and terms. The most common is the Direct Farm Ownership loan. You can receive up to a $300,000 loan with a term of up to 40 years. It helps you own the farm you need.
Direct Down Payment farm loans help transition you into a commercial loan for your farm. However, you will need a larger down payment. You will need a down payment that is the lowest of:
- 45% of the purchase price
- 45% of the appraised value
The term for the Direct Down Payment Loan is usually 20 years with a fixed interest rate.
The Direct Operation Loan helps you keep up the operations of your farm. You can borrow up to $300,000 for this loan. The term usually varies between 1 and 7 years. This loan is meant to help get you started on a commercial loan in the near future.
The Direct Emergency Loan helps you in the face of an emergency. As you get your farm repaired, you receive funds to get you going. You can usually borrow the lower of:
- 100% of the loss
You can usually borrow the funds for between 1 and 7 years. However, if there is significant physical loss, you may borrow the money for up to 40 years.
Qualifying for the Direct Farm Loan
In order to qualify for a Direct Farm Loan you must be a resident of the United States. You must also meet the following requirements:
- Have acceptable credit that shows that you can afford and pay back the loan
- Not have any previous defaults on a federal loan, including USDA loans
- Be ineligible for any other type of financing for your farm
- Be able to show adequate experience in farm management and operations
- Be the owner and operator of the farm after the loan closes
Applying for a Direct Farm Loan
You can apply for the Direct Farm Loan on the USDA website. You will have a variety of forms to complete, including:
- 3-year financial history
- 3-year production history
- List of creditors
- Farm business plan
- Proof of experience
- Tax returns
You will send your application directly to the FSA. Usually, they will respond within 10 days to let you know if they need any more information. In general, it takes up to 60 days to complete the process and to get an answer.
Once the FSA approves your loan, you will receive documentation of the loan amount, term, and interest rate.