Benefits of a Farm Service Agency (FSA) Loan

The Farm Service Agency (FSA) has a variety of FSA loans that are awarded to its covered group of clients who are the farmers and ranchers. An eligible applicant who is granted one of the federal government agricultural loans can enjoy a lot of benefits from these financing aids. Let's itemize these advantages:

Reserved Funding for Specific Groups - Every year, the government set apart ample budget for specific groups of farmers and ranchers that they can use to fund the needs of their business' operation, as well as to purchase a farmland that they can own. These reserved funds are exclusively distributed to qualified beginning farmers and socially disadvantaged (SDA) group engaging in agricultural production. For farm or ranch owners that are classified as beginners, the percentage of targeted funds for each fiscal year are as follows: 50% for direct operating loan, 75% for direct farm ownership loan, 40% for guaranteed operating loan, and 40% for guaranteed farm ownership loan.

Availability of Funds for Disaster or Emergency Needs - A farmer or rancher whose business operation is affected by natural calamities like flood, drought, and hurricane can avail a disaster financing. This FSA loan which is known as the "emergency loan" is targeted to aid the recovery of agriculture production losses and damages caused by calamitous events. The availability of emergency funds help restore or replace vital farming properties, machinery and equipment. It can also sustain living expenses of the family members while on the stage of income restoration.

Fast Approval from Private Lenders
- Guaranteed FSA loans which capital are obtained from commercial and private lending institutions like credit unions, banks and farm credit system institutions, can be quickly processed and approved. It is because the federal government guarantees up to 95% of the loan and its related interest availed by an eligible borrower. Since most of the grant is secured by the government's loan program, private lenders are more willing to approve and produce funds to FSA loan borrowers.

Lower Interest Rates - FSA loans, whether direct or guaranteed, have lower interest rates compared with small business farming loans obtained through private lending entities. The purpose of each loan program is not to generate income like commercial lenders do, but to help assist the needs of its members. The following is the breakdown of interest rates of each FSA loan as of July 1, 2009 (rates are subject to change):

direct farm operating loan - 2.50%

direct farm ownership loan - 4.625%

direct, joint-financing farm ownership loan - 5.00%

down payment farm ownership loan - 1.50%

emergency loan - 3.75%

Down Payment Program -
The establishment of "down payment program" gives beginning and SDA farmers to own a farmland. With this program, a retiring farmer may wish to transfer the ownership of the farm to younger family members of whom he or she would want to take care of the farming business in the future. The term of the loan is up to 20 years, enough for him or her to fully pay off the borrowed capital.