Qualifying for a Farm Service Agency (FSA) Loan with Bad Credit

FSA loans are available for farmers and ranchers in order to access necessary funding for their agribusiness enterprise. These loans are available through the Farm Service Agency of the U.S. Department of Agriculture (USDA) and can be made directly by the FSA or through loan guarantees of up to 95 percent to private lenders. Private lenders include banks, farm credit system institutions and credit unions.

Many of the loan programs require the applicant to meet the lending requirements of the lender.  This includes collateral and credit requirements that may be imposed in addition to the program requirements installed by the FSA. These requirements make it difficult for applicants with bad credit to qualify for these loans.  

Guaranteed Farm Loan

The exception to this is the Guaranteed Farm Loan program that provides private lenders with a 95 percent loan guarantee to back any loans made to a farmer or rancher who may not otherwise qualify for a commercial loan. This guarantee provides the private lender with some protection against loan default by providing the backing of the federal government against the loan principal.

The Guaranteed Farm Loan program targets a percentage of its loan guarantees toward minority and socially disadvantaged groups. This includes individuals that are women, African-Americans, American Indians, Alaskan Natives, Hispanic-Americans and Latinos, Asian-Americans and Pacific Islanders. The loans come in the form of Farm Ownership loans (FO) and Operating Loans (OL).

Applicants with Bad Credit

Having bad credit does not necessarily preclude a borrower from applying for a guaranteed loan. The lender receiving the guarantee determines eligibility for the funding but may impose additional requirements on an individual or entity that has less than perfect credit. This includes a higher collateral requirement or a co-signer who can stand in and guarantee that the loan obligation will be met.

Additionally, an individual or entity that applies for a loan under this program must be a U.S. citizen, be legally able to enter into the loan agreement, not have caused FSA to incur a loss due to debt forgiveness on 3 prior occasions, own or operate the farm or ranch and must not be delinquent on other federal debt, including a federal student loan.

FO and OL Loans

FO loans can be used to purchase a farm or ranch, construction, repair, improvements and debt refinancing. The operating loans go toward the costs associated with operating a farm or ranch including livestock and feed, seed, chemicals, insurance and other expenses. The maximum amount that the FSA guaranteed under the program is a little over $1,000,000, which is adjusted annually for inflation.