As noted in prior Beginning Farmer Forum posts, beginning farmers often times have smaller operations, which means less land and capital. Consequently, they may require hefty loans to get their operations off the ground, but acquiring that amount of money is challenging since they also have shorter production histories and difficulty proving future profitability. The U.S Department of Agriculture (USDA) Farm Service Agency’s (FSA) beginning farmers and ranchers loans help address these issues because, unlike a private bank, they are familiar with and cater to the specific needs of new producers.
FSA offers three types of direct loans: ownership loans, operating loans, and microloans. Ownership loans provide farmers the capital to become owner-operators of family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure. FSA proudly displays “we keep America’s agriculture growing” above their ownership loans guide, and with their ownership loans, they keep this promise. Ownership loans don’t require previous farm ownership or a down payment, making it easier for beginning farmers to get their first steps or a leg up in the agricultural world.
Operating loans, also provide capital to farmers, but unlike ownership loans, the funds are not intended for ownership costs. Instead, these loans are designed to help farmers and ranchers afford the day-to-day operations on a farm. Everything from reorganization costs to purchasing livestock and farm equipment to farm operating expenses – like feed, seed, fertilizer, pesticides, and farm supplies – can be covered, so long as it’s essential to the success of the operation. Operating loans are important because they provide capital during tough financial stretches or when necessary updates are not in the budget.
Microloans are intended to help finance beginning farmers, small operations, and “non-traditional” operations such as community supported agriculture (CSAs) and hydroponic farms. They can fall under either category – ownership or operating – and don’t require appraisals, verifications of non-farm income for repayment, or other requirements that regular loans may require. This allows for beginning farmers to take out loans that fit the size of their operations while avoiding large amounts of debt.
Acknowledging that some FSA borrowers may carry more risk, credit counseling and supervision is offered to help applicants stay on top of their loans, answer any questions, review financial progress, and provide advice. This not only helps the loan recipient avoid defaulting, but it also helps protect the government’s investment. It is particularly important to understand the terms and conditions of FSA loans because the federal government enjoys special privileges in obtaining the loan’s balance and taking property used to secure the loan.
Stay tuned – in future posts, we will explore these loans in greater detail to help beginning farmers decide what might be best for their operations.