USDA's Farm Service Agency makes loans and guarantees loans to family farmers and ranchers to promote, build and sustain family farms in support of a thriving agricultural economy. Farmers may apply for direct loans at local FSA offices. Guaranteed loans may be available from local commercial lenders who apply for loan guarantees from FSA. Although general information may be obtained from FSA headquarters and state offices, all programs are administered through local offices.
Brian Gossling, chief program specialist for FSA farm loan programs at the Iowa FSA's state office in Des Moines, provided the answers to the following often-asked questions. Farmers are encouraged to contact their local FSA office for further information regarding FSA loan programs. Likewise, if you have any farm program related question, always check with your local FSA office. Information can also be found online.
Question: The Farm Service Agency provides loans to beginning farmers to fund operations and to buy farms, but we are also hearing about USDA's new Microloans. What is a Microloan?
Answer: Microloans are another tool available through FSA to fund farm operating needs. Microloans are designed to assist smaller operations, including both traditional and non-traditional, niche type enterprises. The application process is streamlined, which means less paperwork and faster loan approvals. FSA does not rely as heavily on past performance when evaluating repayment and we have greater flexibility when considering loan eligibility.
Related: Find Your Local FSA By State
There is no minimum loan amount, which is important for operations having trouble finding reliable financing because their credit needs are too small to attract attention from conventional credit sources. The maximum loan size for a microloan is $35,000.
Microloans also serve as a great starter loan for beginning farmers. The application process is less overwhelming, which removes one barrier for applicants. Beginning farmers can build their credit skills at the same time they are establishing their farm operations. There is great synergy with the process, and these loans become a stepping stone to other FSA and conventional loan programs.
FSA can also help operators with establishing mentoring or other relationships to support new or unique operations. Prior experience is one consistent marker of future success for farmers, so mentoring programs and other support structures are important for new operators.
Question: You mentioned using Microloans to finance traditional and non-traditional enterprises. What kinds of enterprises has FSA funded with microloans?
Answer: One of the best features of the microloan program is flexibility. As you might expect, we have provided funding to a lot of cow-calf and row crop operations, but we have also expanded our portfolio by funding some unique operations. Microloans allow FSA to approach lending to these types of farms in ways that better fit the operation's needs.
Microloans were initially developed to fill a credit gap for what we may think of as specialty crops or non-traditional operations. Fruit and vegetable production for local markets and niche meat production are examples. These types of operations often do not have the external support and resources we see with many of our traditional farm enterprises. As a result, there can be additional production and marketing risks, which may lead to fewer credit opportunities. We've seen tremendous interest in microloans for vegetable production. We've also funded poultry and meat goat enterprises, as well as a couple apiaries.
Many of these operations have used the program to fund equipment and other capital needs, so the operations should enjoy benefits from the program for a number of years.
While the program is very flexible, loan funds cannot be used to finance nonfarm enterprises, including earthworms, exotic birds, tropical fish, and dogs or horses used for non-farm purposes.
Question: What financing terms does FSA have available for the Microloan program?
Answer: Repayment terms are very similar to our traditional operating loan program. We try to match repayment with the operation's income streams and the type of loan collateral. Loans for machinery and breeding livestock are typically set up for repayment over five to seven years. Annual operating loans, such as to plant a crop or purchase feeder livestock, are usually set up for repayment within 12 months, but can be extended to 18 months if necessary to match an operation's income source. Many applicants make monthly payments to reduce their interest costs and to pay the loan off faster.
The interest rate for microloans is one of the great benefits. The rate for a specific loan varies by the date of approval or closing, but rates have been hovering under 2% since the inception of the program in January of 2013. The interest rate and repayment terms of up to seven years are key components in keeping payments at a manageable level for operations in the start-up phase of their business cycle. FSA's goal is to provide financing at reasonable rates and terms to allow an operation to be profitable and increase equity, as these are the primary drivers of growth and prosperity.
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