Beginning Farmers and Ranchers Down Payment Program

Building a successful farm is a significant financial investment and can be especially challenging for beginning farmers who are not financially ready to access credit from commercial lenders. The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers. While FSA is fully committed to all farmers and ranchers, there is a special focus on the credit needs of farmers and ranchers who are in their first 10 years of operation.

Each year Congress targets a percentage of farm ownership and farm operating loan funds to beginning farmers. Providing loan programs is important as beginning farmers have historically experienced more difficulties obtaining financial assistance.

Being a beginning farmer is one of the requirements to be eligible for the Direct Farm Ownership Down Payment Loan. Down Payment loan funds may be used only to partially finance the purchase of a family farm. Loan applicants must contribute a minimum down payment of 5 percent of the purchase price of the farm and the Agency will finance 45 percent to a maximum loan amount of $300,150. The balance of the purchase price not covered by the down payment loan and the loan applicant's down payment may be financed by a commercial lender, private lender, a cooperative, or the seller.

Eligibility

A beginning farmer is an individual or entity who: • Has not operated a farm for more than 10 years; • Substantially participates in the operation; • For farm ownership loans, the applicant cannot own a farm greater than 30 percent of the average size farm in the county, at time of application. • If the applicant is an entity, all members must be related by blood or marriage, and all entity members must be eligible beginning farmers.

In addition, beginning farmers must meet the loan eligibility requirements for the program.

General eligibility requirements include:

• not having Federal or State conviction(s) for planting, cultivating, growing, producing, harvesting, storing, trafficking, or possession of controlled substances
• the legal ability to accept responsibility for the loan obligation
• an acceptable credit history
• be a United States citizen, non-citizen national or legal resident alien of the United States, including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories
• no previous debt forgiveness by the Agency, including a guarantee loan loss payment
• being unable to obtain sufficient credit elsewhere, with or without an FSA loan guarantee
• no delinquency on a Federal debt, other than IRS tax debt, at the time of loan closing
• not being ineligible due to disqualification resulting from a Federal Crop Insurance violation
• have sufficient managerial ability to assure a reasonable expectation of loan repayment

Explanation of "Managerial Ability"

Managerial ability is shown to the Agency through any combination of education, on-the-job training, and farm experience or by meeting just 1 of these criteria. The level of management ability required will depend on the complexity of the operation and the amount of the loan request. Every application is evaluated on a case-by-case basis.

Education:

• 4-year college degree or graduate degree in agricultural related field(s)
• 2-year college degree from a technical college in agricultural related field
• successful completion of farm management curriculum offered by the Cooperative Extension Service, a community college, adult vocational agricultural program or Land Grant university
• successful completion of a community-based, nationally-based, non-profit or similar farm workshop programs
• vocational or general agriculture classes in high school in addition to working on a farm and participating in, and successfully complete agricultural projects in, 4-H, FFA, Tribal youth organizations, Grange Youth, or another agricultural affiliated club

On-The-Job Training:

• working or recently worked as hired farm labor with management responsibilities (make day-to-day decisions)
• completing or recently completed a farm mentorship, internship or apprenticeship program with an emphasis on management requirements and day-to-day farm decisions
• participating or recently participated in urban or community-supported agriculture programs which incorporate basic agricultural training

Farm Experience:

• owner, manager or operator of a farm business for at least 1 full production and marketing cycle within 5 years of the date of the loan application
• employed as a migrant farm worker and elevated to leadership or foreperson position for at least 1 entire production and marketing cycle with responsibilities related to crop and field management, livestock health, breeding supervision, labor management or hiring, or general farm management
• raised on a farm and had significant responsibility for day-to-day management decisions for at least 1 entire production and marketing cycle
• obtained and successfully repaid at least 1 FSA Youth Loan

Credit Score

FSA does not rely on credit scores to make eligibility determinations. Loan applicants are expected to have acceptable repayment history with other creditors, including the Federal Government. Loan applicants are not automatically disqualified if there are isolated incidents of slow payments; no credit history; or if it can be shown that any recent undesirable credit problems were temporary and beyond a loan applicant’s control. "No history" of credit transaction by a loan applicant does not automatically indicate an unacceptable credit history.

Terms

FSA has a special loan program to assist beginning farmers in purchasing a farm. Retiring farmers may use this program to transfer their land to future generations.

Requirements: • Cash down payment of at least 5 percent of the purchase price. • Loan amount limited to 45 percent of the least of:

• The purchase price of the farm;
• The appraised value of the farm; or
• $667,000 ($300,150 maximum).
• 20 years loan term.
• Interest rate is 4 percent below the direct farm ownership rate, but not lower than 1.5 percent.

The remaining balance may be obtained from a commercial lender or private party. FSA can guarantee up to 95 percent of the loan if financing is obtained from a commercial lender. Participating lenders do not have to pay a guarantee fee.

Financing from participating lenders must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.

Application Instructions

Farmers may apply for direct loans at their local FSA offices. Your local FSA offices are listed in the telephone directory under U.S. Government, Department of Agriculture or Farm Service Agency or find your local FSA office at farmers.gov.

For guaranteed loans, applicants must apply to a commercial lender who participates in the Guaranteed Loan Program. Contact your local FSA office for a list of participating lenders.

Useful Resources

• FSA Farm Operating Loans Main Page
• Your Guide to FSA Farm Loans
• Fact Sheet: Farm Loans Overview
• Direct Loan Making Handbook
• Farm Answers Library
• National Agrability Project
• USDA Veterans in Agriculture
• Farmers.gov