FSA Loans for Young Farmers and Ranchers: Qualifying with Bad Credit

FSA loans are a good option for those with bad credit because they are based on many factors, and do not focus on credit alone. Commercial lenders focus on a borrower's financial history and credit score when determining interest rates and financing. Government programs, though, are often designed to assist economically-disadvantaged persons in achieving business ownership. This means qualifying based on the loan is more important than qualifying based on personal credit.

Meet the Beginning Farmers Requirement

First, you must determine if you qualify as a beginning farmer. There are several restrictions here, and this may include age. If you are specifically seeking the loan for "young farmers," you will need:

  • Be between the ages of 10 to 20 years old. Individual states may also have programs that set different age requirements. If you are seeking a beginning loan, however, age will not come into play as much as how long you have been in the farming business.
  • You will need to have between 3 and 10 years' experience to qualify for the federal program.
  • Further, you will need to be a significant participant in the operation of the farm. This mostly means you cannot seek a loan for a farm you do not assist in operating. 

Meet the Loan Requirements

The basic loan requirements have to do with the size of the loan you are seeking. While traditional small business loan requirements focus on the borrower, FSA loan requirements focus on the businesses. You will need to determine whether you are seeking a farm ownership loan (to purchase the land) or a farm operational loan (to operate the land). From here, you can research the loan limits set each year. The best place to look for loan limits and terms is with the FSA website at: http://www.fsa.usda.gov

Start Small

If you have bad credit, it is best to keep your loan limits within reason. This means you should consider how much you can truly afford to finance and payoff based on your current circumstances. These loans are aimed at creating self-sufficient businesses that benefit both the farmer and the country as a whole through producing crops. If the loan is too big for the farmer to pay off, neither party benefits. Starting small may mean purchasing a small amount of land or not spending the entirety of the operating loan in one purchase.

Seek Additional Financing

The FSA gives borrowers the option of seeking additional commercial financing. The FSA guarantees these loans up to a very high amount, more than double the standard FSA loan. Once you have built up your credit score through successfully making payments on your low-interest FSA loan, you can seek an additional loan from a private lender and join the financing. You will have to ensure the lender is operating under the FSA's requirements in order for the financing to be guaranteed. If it is, however, even a person with less than perfect credit can receive an inexpensive rural loan form a private source.