Funding Your New Farm With A Farm Loan

Get a boost putting a down payment on a piece of land to call your own with the help of federal farm loan programs.

by Lisa Kivirist
PHOTO: Nicholas A. Tonelli/Flickr

What federal farm loan programs are available to first-time farm buyers?

Let’s first clear up any rumors: There is no free money from the federal government to buy or start a farm. These are our tax dollars we’re talking about here, and various programs and opportunities related to farm loans can be tapped into by individuals with agriculture experience and professional-farming aspirations.

Note those two pieces of important criteria:

  • agriculture experience
  • professional-farming aspirations

Federal farm loans are intended for people who want to farm as their primary source of income, have racked up diverse on-farm experiences and have written a solid business plan for the operation. These loans are not intended for rural residences or farms operating small, part-time businesses.

The Farm Service Agency, a department of the USDA, has offices in every state that administer these loans, as well as information on other agriculture and land-management programs. There are loan opportunities for both farm purchases and existing operations. While the majority of FSA’s programs target larger, commodity-based farm operations, their farm-loan funding pool does prioritize farmers with less than 10 years of experience. Likewise, you’ll receive priority status if you’re a female farmer or from another minority group that qualifies as socially disadvantaged.

However, the process with the FSA is similar to the application and vetting process for a real-estate or business loan with a traditional bank. You’ll need all your financial documentation and your farm business plan organized and clearly communicated. There are some clear distinctions in the FSA loan process.

Targets Farmers Denied Traditional Credit

The FSA describes itself as the “lender of first opportunity,” but what that really means is these loan programs are intended for farmers who are unable to obtain a loan through a traditional bank due to circumstances, such as poor credit history or lack of the required down payment. If a bank will give you the full loan to purchase the property and start your farm, you probably won’t qualify for a FSA loan. However, FSA loans often work well for young farmers without capital or the savings for a full down payment.

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Requires Minimum 3 Years Experience

Like a bank, the FSA wants a farmer-loan recipient to succeed in the venture and not default on the loan. To help ensure this, the FSA loan process requires three years of farming experience, including serving in a managerial role on a farm. The FSA is open to various forms of farm experience beyond an agriculture degree from a land-grant university. Internships, farming conferences, and various certificate and training programs all potentially qualify as part of this experience portfolio.

Extremely Favorable Interest Rate & Terms

One major appeal of FSA loans is a better interest rate (as low as 1 to 2 percent) and more appealing terms than you would encounter at a traditional bank.

Tedious Approval Process

The FSA loan approval process can take much longer than a bank’s, which might adversely affect your appeal to a potential seller. For that reason, FSA loans often work well for beginning farmers negotiating with a property owner who is not motivated to sell, such as a family member.

If you think you might qualify for an FSA loan, familiarize yourself with the general programs available on the FSA website, locate a loan officer in your desired purchase region, and meet with him to introduce yourself and your plans. Have this meeting as early as possible in your farm-purchase process so any missing requirements, such as those three years of experience, can be accounted for and fulfilled in a timely fashion.

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