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The USDA provides producers with several effective risk management programs to protect new farmers starting their operations, and allow farmers to manage the risks on their farms. For example, the USDA's Farm Service Agency (FSA) will enable farmers to obtain loans for their farms and crops to ensure stability against financial losses and barriers in the case of debt and unfortunate market and growing conditions. Federal crop insurance provides additional assistance to disadvantaged producers impacted by such disruptions, making these farmers eligible for certain benefits, including farm credit programs, crop insurance, and conservation programs designed to help start their operations. These disadvantaged groups include Limited Resource, Minority, and Socially Disadvantaged Farmers/Ranchers.
Limited Resource, Minority, and Social Disadvantaged Farmers and Ranchers
Minority producers who are socially disadvantaged are provided additional crop insurance benefits so they can buy and start their operations with fewer barriers than they already face. The insurance benefits are intended to reduce financial hardships, and the instance of loss of land ownership for a group with fewer available resources and has been historically deprived by the USDA, due to discrimination. Socially disadvantaged farmers and ranchers (SDFRs) include Black or African American, American Indian or Alaska Native, Hispanic or Latino, Asian or Pacific Islander, and female farmers. While crop insurance specifically targeted for this group is still unavailable, the American Rescue Plan Act of 2021 provides relief to SDFRs through loan programs financed by the Socially Disadvantaged Applicant (SDA) fund.
Types of Loan Programs
One loan program that SDFRs use is guaranteed and direct farm ownership (FO) loans and operating loans (OLs). FSA distributes direct loans and traditional lending institutions give guaranteed loans, while the FSA guarantees loans by 90%. Both FO loans and OLs can be used to refinance debt, pay closing costs of the farm purchase, buy livestock or crops, and fund other farm operating costs. Direct OLs must be repaid depending on the collateral securing the loan within 1-7 years. Direct FO loans can be repaid between 1-40 years, with the interest rate set by the government’s cost of borrowing. The lender sets guaranteed loan terms and interest rates.
Another loan program created specifically for SDFRs is the Direct Farm Ownership Down Payment Loan. This loan is used to assist SDFRs in financing the purchase of a farm, but can only be used to finance the purchase partially. Under this program, the farmer makes a 5% down payment toward the purchase price, and the agency provides only 45%, to the maximum loan amount of $300,000. The balance of the purchase price and the down payment, if needed, can be funded by a commercial lender, for which the FSA can provide a 95% guarantee. This loan lasts at least 20 years, with an interest rate of 4% below the direct FO rate, but no lower than 1.5%.
SDFRs may also purchase agricultural land through land contract guarantees and the sale of inventory farmland options. Land contract guarantees are financial assurances to the seller of the farm through a land contract sale, with a purchase price of the farm below $500,000. There are two types of land contract guarantees prompt payment and standard guarantee. A prompt payment guarantee ensures up to the amount of three amortized annual installments plus the cost of any related real estate taxes and insurance, while a standard guarantee ensures 90 percent of the outstanding principal balance under the land contract. These types of agreements last 10 years with the interest rate fixed so as not to exceed the direct FO rate. In a Sale of Inventory Farmland, SDFRs may choose the advertised property, selected by the FSA, and are given first priority to purchase the property. The property is displayed for only 15 days and if multiple buyers decide they want to buy the same property, the buyer is chosen randomly.
Eligibility and Applying
Eligible SDFRs must be Black, American Indian, Alaska Native, Latino, Asian, Pacific Islander, or/and Female producers. SDFR producers are still eligible for SDA loans, even if they have already qualified and received benefits from the beginning farmer crop insurance benefits.
Applicants for SDA funding and loan programs must provide their race, ethnicity, and gender on the application, which are available through your crop insurance agent. For direct loans, applications can be submitted to the local FSA office serving the operation's area. Applications must come from a commercial lender participating in the Guaranteed Loan program.
Additional Resources
Please contact your local USDA Service Center or the call center for further loan application questions or assistance at 877-508-8364. *More information about how to access USDA programs and services is available on USDA's farmers website at https://www.farmers.gov