Minority and Women Farmers and Ranchers
Targeted FSA funds are available for Socially Disadvantaged Applicants (SDA): women, African Americans, Alaskan Natives, American Indians, Hispanics, Asians, Native Hawaiians, and Pacific Islanders. All SDA loan processes and requirements are identical to all non SDA processes and requirements.
*Applicant must provide his or her ethnicity, race, and gender on the loan application to be considered for targeted SDA loan funding
- Farm Ownership Loans
May be used to purchase farmland, construct or repair buildings and other fixtures, develop farmland to promote soil and water conservation, or refinance debt.
- Operating Loans
May be used to purchase livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance, and other operating expenses. Operating loans may be used to pay for minor improvements to buildings, costs associated with land and water development, family living expenses, and to refinance debts under certain conditions.
FSA can guarantee operating loans or farm ownership loans up to $1,302,000 (amount adjusted annually based on inflation).
Repayment terms vary according to the type of loan made, the collateral securing the loan, and the producer's ability to repay. Operating loans are normally repaid within seven years and farm ownership loans cannot exceed 40 years.
The guaranteed loan interest rate and payment terms are negotiated between the lender and the borrower. Interest rates on these loans may not exceed the rate charged the lender's average farm customer. In addition, under the Interest Assistance Program, FSA will subsidize 4% of the interest rate on loans to qualifying borrowers.
For most loans, FSA charges a guarantee fee of 1.5% of the guaranteed portion of the loan. This fee may be passed on to the borrower. The guarantee fee is waived for:
- Interest assistance loans
- Loans where more than 50% of the loan funds are used to pay off direct FSA loan debt
- Loans in conjunction with a Downpayment Farm Ownership Loan program for beginning farmers or a qualifying state beginning farmer program. This fee waiver does not extend to all beginning farmers.
The secondary market for USDA guaranteed loans is a key feature of the guaranteed lending program. The lender may resell the guaranteed portion of the loan to an interested party. The interested party then becomes the holder of the loan, but the original lender must retain the loan servicing responsibilities. Investors who are looking for safe investments with a reasonable return are attracted to these loans because of the government's full faith and credit guarantee against default. The existence of the secondary market makes guaranteed loan notes more liquid. By reselling the guaranteed portions, lenders reduce interest rate exposure, increase their lending capabilities, and generate fees.
Advantages of Using the Secondary Market
The existence of the secondary market is a strong inducement for lenders to become involved in guaranteed lending. Selling the guaranteed portion of the loan to other investors offers a number of advantages, including:
- Reduced interest rate risk. Lenders can transfer risk of increases in interest rate on the guaranteed portion of a fixed rate loan.
- Increased liquidity. Selling the loan on the secondary market frees the funds for additional lending or investing activity.
- Increased lending or investing capabilities. Since the guaranteed portion of the loan is generally not applied against a bank's lending limit, it can be used to expand lending capabilities.
- Increased return on investment. The sale of the guaranteed portion of the loan in the secondary market increases the lender's overall return on investment. Each time a bank sells a guaranteed portion, it generally retains a servicing fee.
- Rates and Terms. Lenders may offer the producer more flexible repayment terms, as well as fixed and/or reduced interest rates to improve cash flow