Direct Operating Loans

Direct operating loans are available through the Farm Service Agency, a branch of the U.S. Department of Agriculture. This type of loan provides funds to farmers who cannot acquire a private loan and who require items and equipment for the operation of their farm. These include but are not limited to farming equipment, animal feed, seed for crops, chemicals for crops, farm repairs, insurance and even livestock. There are guaranteed loans and direct loans that can be acquired, each with different requirements for eligibility.

Guaranteed loans are provided by traditional lenders such as banks, credit unions and other financial institutions. They are guaranteed by the Farm Service Agency (FSA) for 95 percent of the principal and interest. There is a maximum guaranteed amount which is $1,112,000. If you do not qualify for a guaranteed loan your other option would be an FSA direct loan. This type of loan is handled by Farm Service Agency professionals, who not only serve as the lender but provide counseling on finances and credit for the borrower. This type of loan requires proof of collateral and also proof that the borrower will be able to repay the loan. The maximum amount that can be borrowed with these direct operating loans is $300,000 and there are other requirements set forth by the FSA.

One requirement is that you must be a citizen of the United States. You cannot be delinquent on any type of federal government debt or defaulted on a previous debt. Your credit history is also important and will factor into the approval process. You will be screened for drug convictions as well. Your farm must be designed as family size, and you cannot have financial judgments on your record. Also, you will need to show that you cannot get a loan from any other lender. And as mentioned previously, proof that you can repay the loan and collateral is required.

There are specific terms for direct operating loans as well. The maximum term is seven years. For annual expenses the term is usually one year. The interest rates charged on this type of loan depends on the cost of funds determined by the government. The Farm Service Agency does provide lower rates to those who cannot afford the standard interest rate. When it comes to guaranteed loans, they are negotiable with the lender. The interest charged on a guaranteed loan cannot be more than what the average direct loan farmer is charged. For some farmers with a certain income the Agency can take care of four percent of the interest. Guaranteed loans come with an origination fee that is equivalent to one percent of the guaranteed amount.

There are application requirements that must be adhered to. You will need to submit a completed FSA-2001 application, a business plan and various other documents that will determine if you qualify. You should know that the funds from direct operating loans cannot be utilized for anything considered non-farm, such as the breeding of dogs, tropical aquatic life, earthworms, exotic animals or horses used for any purpose other than farming. To learn more about direct operating loans and how you can apply, visit the website of the Farm Service Agency and/or USDA. These are the agencies that issue these loans and they can provide you with all the information you need regarding application and qualification requirements. For farmers who need equipment for their farm these loans can be extremely helpful and help keep the farm running, which is something encouraged by both the FSA and the USDA.