Direct Ownership & Operating Farm Loans

By: Kris Koonar

Direct Ownership Farm Loans (FOs) and Operating Farm Loans (OLs) are offered by FSA. These loan programs provide financial help to the family farmers and ranchers who are unable to receive any credit or loan from other loan agencies at the start of their business. These loans are also made available to farming professionals who want to expand their farming activities.

The significant features are low interest rates, and individualized counseling and monitoring of the credit process.

You can apply from any FSA county office or USDA Service Center for these loans. Proposed plan to utilize the loan funds, the existing farming setup and the farming operation are things that are reviewed to assess the eligibility. The proposal is reviewed on points such as local farming practices, production conditions, the particulars of the individual applicant, with the inputs from Local FSA County Committees.

After reviewing the proposal for eligibility, the applicant is informed by the FSA if the loan proposal has been accepted. The ability to repay and to provide sufficient collateral for the loan is necessary. The borrowers are enrolled in a Borrower Training Program run by FSA that teaches them about the financial management of running a farm.

Eligibility: Applicant must be a US citizen, who has not been able to secure a loan from other commercial sources. However, he must have adequate training or experience, and a satisfactory credit history. The applicant must be a family farmer. Alternatively, he should be planning to become one by owning and operating a family-sized farm. In both cases, the loan funds must be intended and planned to fully utilize the farming resources for maximum profit. Borrowers of direct FO credit help must be farm or ranch operators for a minimum of three years from the last ten years.

Applicant for FO or OL must be a beginning farmer or a rancher who has neither received prior FO or OL credit. In case of FO applicants, FO credit if received should not be beyond ten years before applying for the present loan. For OL, the prior OL credit received should not be beyond six years before applying for the present OL.

An FO loan can be utilized for expenses such as to purchase or expansion of the farm, make improvements on resources, to pay the closing expenses, to pay for the improved soil and water conservation, or sustainable farming systems and practices.

For an OL, the expenses applicable are the operating expenses such as to reorganize the farming or ranch operations, purchasing equipment or cattle, supplies, to meet the conservation costs, closing costs, to meet the OSHA requirements, to pay tuition expenses for borrower training classes, to meet farm and family running costs, and repayment expenses in some situations.

Credit period for OL is usually 1 year. However, for equipment loan it is usually 7 years. FO loans generally have 40 years, for beginning farmers; the structure is different- 30-year credit ballooning after 10 years to be changed as a commercial loan. The interest rates are 1 percent, plus half the cost of money for limited resources applicants in certain cases; and for down payment credit, it is 4 percent. The loan limit is $200,000.

Therefore, with an FO or OL you can successfully start a farming business, or expand it to make it more profitable.

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