National Campaign for Sustainable Agriculture

Direct Farm Ownership (DFO) and Direct Operating Loan (DOL) Programs

Program Description

These programs offer farmers affordable credit with direct (as opposed to guaranteed) loans to buy and operate farms. Emphasis is placed on assisting beginning, minority and other limited-resource family sized farms through regular and low-interest loans and individualized credit counseling and supervision.

The purpose of the direct farm ownership (FO) and operating (OL) loan programs are to provide financing and assistance to family farmers to establish farms, achieve financial success and graduate to commercial credit or self-financing. FSA has various tools to assist family farmers, which include low interest rates and individualized credit counseling and supervision.

Each dollar appropriated for these programs makes $6 to $10 of loans available to farmers. Appropriated levels reflect only the government's cost of running the programs, including the subsidy that lowers interest rates, a projected default rate for each type of loan, and similar costs.

Program Administration

These programs are administered by the Farm Service Agency (FSA) through local FSA county offices of USDA service centers.

Program Status

These programs were created in the Consolidated Farm and Rural Development Act of 1972, as amended.

Using the Programs

Applicants apply directly through local FSA county offices or USDA Service Centers. FSA officials will meet with the applicant to assess all aspects of the proposed or existing farming or ranching operation, and determine if the applicant meets the eligibility requirements. Local FSA County Committees act in an advisory capacity to FSA loan officials on local agricultural practices, production conditions and loan applicants.

Once FSA receives all the financial and organizational information, the applicant will be notified whether the loan has been approved. The loan recipient must meet certain eligibility requirements, request funds for authorized purposes, have repayment ability, be able to provide enough collateral to secure the loan on at least a dollar-for-dollar basis and enroll in a borrower training program. The number of direct and guaranteed operating loans that FSA can make each year may vary depending on the demand for such loans and the amount of funds appropriated by Congress.

Criteria for Eligibility

Eligible borrowers must be U.S. citizens, be unable to obtain credit through commercial sources, have sufficient training or experience, have an acceptable credit history, be or becoming owners or operators of family sized farms and be able to demonstrate the need to maximize income from farming. In addition, applicants requesting direct FO assistance must have operated a farm or ranch for at least three years. An applicant who applies for FO assistance must be a beginning farmer or one who has either never received an FO or has received FO assistance not more than 10 years before the date of the proposed loan. An applicant who applies for OL assistance must be a beginning farmer or one who has never received OL assistance or received OL assistance not more than six years before the date of the proposed loan.

FO loans may be used for acquiring or enlarging a farm or ranch, making capital improvement, paying closing costs and paying for soil and water conservation improvements, including sustainable agriculture practices and systems. OLs can be used for paying costs for reorganizing a farm or ranch, purchasing livestock or equipment, purchasing supplies, financing conservation costs, paying closing costs, complying with requirements under the Occupational Safety and Health Act of 1970, paying tuition for borrower training classes, refinancing indebtedness under certain conditions, and providing farm and family living expenses.

OLs are generally for one year, except for equipment loans, which are generally seven years. Standard FO loans may be made up to 40 years, except for special beginning farmer down-payment loans, which are 30-year loans that balloon after 10 years, leading to refinancing as commercial loans. Interest rates are at cost to the government rates for regular loans, one-half cost of money plus 1 percent for certain limited-resource borrowers, and 4 percent for down-payment loans. Loans may be made up to $200,000.

A portion of available loan funds is reserved for minority farmers and beginning farmers. "Beginning farmer" is defined in part as an applicant who has not operated a farm or ranch for more than 10 years. For beginning farmer ownership loans, borrowers may not already own acreage exceeding 25 percent of the median acreage for farms in the county. Through the beginning farmer down-payment loan program, borrowers put up 10 percent of the cost of the purchase, FSA finances 30 percent for 10 years at four percent interest, and the rest of the financial package is owner-financed or from commercial sources, including those made through special state beginning farmer programs available in many states.

Loans for conservation may be used for installation of conservation structures, establishment of forest cover or permanent pasture, conversion to sustainable agriculture production systems and other purposes consistent with conservation, integrated farm management, water quality or wildlife habitat plans.

Who to Contact

To locate your state FSA office, go to http://www.fsa.usda.gov/FSA/webapp?area=contact&subject=landing&topic=landing or look in the telephone white pages under U.S. Government, Department of Agriculture, Farm Service Agency.

National Program Office
Farm Loan Programs Loan Making Division
14th & Independence Avenue, SW, Stop 0522
Washington D.C. 20250-0522
(202) 690-1656; (202) 720-6797 - fax

Farm Service Agency's page on loans - http://www.fsa.usda.gov/FSA/webapp?area=contact&subject=landing&topic=landing

Adapted from "Building Better Rural Places"