Farm Loan

Farm loans are given as direct funding or as guaranteed funding for farm ownership and operations to family-size farmers or ranchers by receiving a commercial contract. These funds can be used to purchase livestock, land, equipment, feed, seed, and supplies or be used to construct buildings or make improvements on the property. Many beginning farmers are unable to qualify for conventional loans because they lack of financial resources. The Farm Service Agency (FSA) is a government agency that can help beginning owners get a direct or governmental guaranteed farm loan. The FSA also helps farmers who have suffered financial setbacks due to natural disasters, or whose resources are limited to retain a profitable farming operation.

Of the two types of contracts, guaranteed farm loans provide traditional agricultural lenders with up to a 95 percent guarantee on the amount. The lender services the borrower's account for the life of the contract. There is a list of criteria that must be met in order for a farmer and a lender to qualify for these contracts. The farmer applies for the program through his lending institution and the lender relays the appropriate paperwork and discusses options and qualification requirements with the borrower. This type is becoming as popular as FHA loans are to homebuyers.

A direct farm loan is made by agricultural commercial lending institutions, and the FSA also assigns them to borrowers. The FSA requires all borrowers to complete a counseling and loan education program so that they can achieve better success in their business operations. There is limited funding, and an applicant may have to endure a long waiting period before the funds can be dispersed. In order to qualify, the applicant must be able to show sufficient repayment ability and will have to pledge enough collateral to fully secure the loan. The interest rates for FSA direct farm loans are competitive with traditional interest rates.

According to the FSA, the maximum amount loaned for the direct ownership program is $220,000. The length of the contract, however, can be extended to 40 years. The FSA can also break up this amount and offer a 50 percent contract while the borrower receives another farm loan for the remaining 50 percent. This break up allows the borrower to receive the lowest interest rate possible. The use of the proceeds must be limited to land purchase, building construction, and soil and water conservation. If the borrower seeks to operate a business with the monies, then the contract has a 7 year limit on its length. This money can be used to purchase the livestock, poultry, equipment, supplies, and repayment associated with the operation of a farm. These contracts are available in a variety of creative financing packages through governmental agencies and traditional commercial lending institutions. Psalm 19:7 says that the Lord "makes wise the simple." Whenever we, as believers, need to make a decision such as taking out a contract on our business, we need to first consult God in prayer. We can trust Him to guide us in whatever financial venture we undertake.


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