FSA Loans: Qualifying with Bad Credit

Direct operating FSA loans are extended straight from the organization to a qualified borrower. Unlike guaranteed loans, that are provided by a private institution then guaranteed by the FSA, these rural loans do not involve a private lender at all. In fact, only those farmers and ranchers who are unable to get financing through another source will be eligible for a direct loan from the FSA. This means they are excellent options for farmers with poor credit.

Mandatory Rejection

Before you can apply for a direct FSA loan to operate your farm, you must first seek loans through other sources. You must be able to show you could not secure financing with private institutions. Other agricultural loans may come through banks and local lenders. You should apply for a number of programs and document your application process. The documents you supply the FSA will be the only proof you have that you indeed attempted to secure alternate financing. The reason you are rejected will probably have something to do with your credit score. You may also be rejected because you cannot make down payment qualifications. These items can be overcome if you prove you are a good candidate for the FSA program for other reasons.

Need Based Qualifications

The FSA direct ownership loan program is aimed at encouraging beginning farmers and ranchers to start and expand family-sized farms. These are not actually small business loans; they are more like personal loans for your family business. The loans target individuals who can contribute to the health and vibrancy of a community and sustain a living for their family in future generations. If you can prove you will do these things, you are a good candidate for these loans. You should show you are not able to secure typical financing not just because of bad credit but because you are socially or economically disadvantaged. If you are young, living in a depressed area or a minority, you will have a better chance at qualifying based on your needs.

Qualifying with Bad Credit

You will need to be creditworthy to secure a government loan just like any other loan. Your bad credit will present a significant hurdle to securing an FSA loan the same as it would with a private loan. Overcoming this problem, though, is possible with a smart application. Your application should address the reasons why your credit is not up to par. For example, being very young means you have not had the opportunity to build your credit yet. If you have suffered a financial crisis, like a medical emergency, you may be able to explain some credit damage in this way. Aside from explaining away credit damage, consider providing character references. These references can come from other farmers you have previously worked for. They may also be provided from other landlords or lenders who you have a good relationship with. Though these references alone will not get you your loan, they will help clean up your application.