Last Updated February 1, 2007
Loans for Socially Disadvantaged Persons
Providing farm purchase and operating loans targeting socially disadvantaged groups
The Farm Service Agency (FSA) can make and guarantee loans to socially disadvantaged applicants to buy and operate family-size farms and ranches. Funds specifically for these loans are reserved each year.
A socially disadvantaged farmer or rancher is one of a group whose members have been subjected to racial, ethnic, or gender prejudice because of their identity as members of the group without regard to their individual qualities. For purposes of this program, socially disadvantaged groups are women, African Americans, American Indians, Alaskan Natives, Hispanics, Asians, and Pacific Islanders.
The purposes of the program are to:
- Target direct and guaranteed loan assistance to socially disadvantaged people
- Identify and remove obstacles that prevent the full participation of those in FSA's farm loan programs
- Advise qualified applicants on developing sound farm management practices, analyzing problems, and planning the best use of available resources essential for success in farming or ranching
In fiscal year 2003, the obligations incurred for Socially Disadvantaged loans exceeded $87 million and $67 million for direct and guaranteed operating loans (OL), respectively. Loan obligations exceeded $33 million and $185 million for direct and guaranteed farm ownership (FO) loans, respectively.
Application and Financial Information
Direct loans are made to applicants by FSA
and include both OL and FO loans.
Guaranteed loans also may be made for ownership or operating purposes. And they may be made by any lending institution subject to federal or state supervision (banks, savings and loans, insurance companies, and units of the Farm Credit System including the Bank for Cooperatives) and guaranteed by FSA. Some state governments also operate farm loan programs that are eligible for FSA guarantees. Typically, FSA guarantees 90 or 95 percent of a loan against any loss that might be incurred if the loan fails.
Repayment terms for direct OL loans depend on the collateral securing the loan and usually run from 1 to 7 years. Repayment terms for direct FO loans can be as long as 40 years.
Guaranteed loan terms are set by the lender. Interest rates for direct loans are set periodically according to the government's cost of borrowing. Interest rates for guaranteed loans are established by the lender.
Eligibility, Uses, and Restrictions
Eligible applicants include individuals, partnerships,
joint operations, corporations, and
cooperatives primarily and directly engaged in
farming and ranching on family-size operations.
A family-size farm is considered to be one that a
family can operate and manage itself.
In addition to being members of a socially disadvantaged group, individual applicants under this program must meet all requirements for FSA's regular farm loan program assistance. To be eligible, an applicant must, among other requirements:
- Have a satisfactory history of meeting credit obligations
- Have sufficient education, training, or at least 1 year's experience in managing or operating a farm or ranch within the past 5 years for a direct (OL) or, for a direct FO loan, have participated in the business operations of a farm for at least 3 of the past 10 years
- Be a citizen of the United States (or a legal resident alien), including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Island Trust Territories
- Be unable to obtain credit elsewhere at reasonable rates and terms to meet actual needs
- Possess the legal capacity to incur the obligations of the loan
In the case of corporations, cooperatives, joint operations, or partnerships, the stockholders, members, or partners holding a majority interest must meet these same eligibility requirements. The borrowing entity must be authorized to operate a farm or ranch in the state where the actual operation is located.
In addition, the entity must be owned by U.S. citizens or legal resident aliens, and the socially disadvantaged members must hold a majority interest in the entity.
FO loan funds may be used to purchase or enlarge a farm or ranch, purchase easements or rights of way needed in the farm's operation, erect or improve buildings such as a dwelling or barn, promote soil and water conservation and development, and pay closing costs.
OL funds may be used to purchase livestock, poultry, farm equipment, fertilizer, and other materials necessary to operate a successful farm. OL funds can also be used for family living expenses, refinancing debts under certain conditions, paying salaries of hired farm laborers, installing or improving water systems for home use, livestock, or irrigation and other improvements.
FSA is organized on a national, state and county basis. Applicants for direct loans apply directly through the county or USDA Service Center. Individuals can locate the nearest FSA office by checking in the telephone white pages under U.S. Government, Department of Agriculture, Farm Service Agency.
Guaranteed loan applications are made with the lender. In cases where a lender is not known to an applicant, personnel at the county office will help find one and will help with an application, either for a direct loan or a guaranteed loan.
Contact
James F. Radintz, Director
National Program Office
Farm Service Agency
Farm Loan Programs Loan Making Division
14th & Independence Ave., SW, Stop 0522
Washington, DC 20250-0522
Phone: (202) 720-1632; Fax: (202) 720-6797
Internet
www.fsa.usda.gov
