The Farm Service Agency (FSA) offers farm operating loans to farmers who are temporarily unable to obtain private, commercial credit. Operating loans may be used to purchase items needed for a successful farm operation. These items include livestock, farm equipment, feed, seed, fuel, farm chemicals, repairs, insurance, and other operating expenses.
Both guaranteed loans and direct loans are available through this program. Eligibility for each type of loan depends on applicant qualifications. Under the guaranteed loan program, conventional lenders (banks, Farm Credit System institutions, and other lenders) make the loan, and FSA guarantees it for up to 95 percent of the loss of principal and interest. The maximum FSA guaranteed operating loan is $1,214,000.
Applicants unable to qualify for a guaranteed loan may be eligible for a direct loan from FSA. Direct loans are made and serviced by FSA officials, who also provide borrowers with supervision and credit counseling. Applicants must show sufficient repayment ability and pledge enough collateral to fully secure the loan. The maximum amount for a direct farm operating loan is $300,000.
Loan repayment periods for both direct and guaranteed farm operating loans cannot exceed seven years. Loans for annual operating expenses are normally repaid within one year. Loans for equipment and livestock purchases are scheduled for repayment over longer periods, but cannot exceed seven years. Interest rates for direct operating loans are based on the Government's cost of funds. FSA offers lower resource interest rates to direct loan applicants who cannot afford the agency's regular interest rate. Interest rates for guaranteed operating loans are negotiated by the lender and farmer. However, the lender must not charge the guaranteed loan customer a higher interest rate than they charge their average farm loan customer. In some cases, FSA can pay 4 percent of the interest rate for farmers who cannot afford the lender's normal interest rate. For most guaranteed loans, FSA charges an origination fee equal to one percent of the guarantee.