Direct Ownership FSA Loans: Qualifying with Bad Credit

FSA loans are distributed according to need. A direct loan comes straight from the FSA. The FSA offers indirect loans, meaning it guarantees loans provided by private lenders. Direct loans in particular can only go to those persons who are unable to find financing from a private lender. When you have bad credit, you may be a good candidate for an FSA loan. However, you will still need to prove you are creditworthy despite your poor record.

FSA Loans are Need Based

To qualify for a direct loan from the FSA, you must be a farmer or rancher who does not own other property and cannot get financing elsewhere. Private lenders will typically accept your application if you have excellent credit, so most direct FSA loans are bad credit business loans to some degree. While it will not be possible to get a loan if you have just gone through bankruptcy, you will have a chance if your credit is only slightly damaged. These agricultural loans provide up to $300,000 for persons who have been in the farming business for at least 3 years, will be owning or operating the farm after it closes, and can prove they are creditworthy based on a number of criteria.

Qualifying with Bad Credit

Your credit score is the first measure of whether or not you are worthy of financing. Once your score is damaged, you need to rely on other ways to show a lender you will be able to make your loan payments on time. For FSA loans, this may include showing the FSA your business model and how you intend to profit. You may also need to show you have an income other than the farm or substantial asset holdings. Many FSA direct loans go to beginning farmers who are very young. If you are a young farmer with few assets and bad credit, consider applying under one of the special FSA programs. For example, if you are growing a biofuel or can promise to provide at least 50 jobs to the local community, you may be eligible for the loan even though you do not qualify on your financial status alone.

Grounds for Rejection

There are a few factors you must be aware of that will immediately disqualify you.

  • If you have defaulted on a previous loan with the agency
  • If you owe federal or state taxes
  • If you do not intend on operating the farm
  • If you are not a U.S. citizen or non-citizen native