Farmers and Bankers Back FSA Loans, But See Need to Modernize

For beginning farmers looking to establish credit or other producers facing challenges with today's interest rates, the suite of loan programs offered by the U.S. Department of Agriculture could be an attractive alternative.

Farmers, rural bankers and Farm Credit lenders are increasingly turning to Farm Service Agency (FSA) loan programs. Still, everyone would like to see improvements, such as higher credit limits, more flexibility on guarantees and faster approval times. Nearly everyone agrees FSA's loan limits -- spelled out in the farm bill -- do not reflect the realities of modern agriculture. FSA's approval process also can be slow and tedious.

FSA offers direct loans through its offices and loan guarantees through lenders. The benefit of direct loans is they have lower interest rates than offered through commercial banks or Farm Credit. In August, for instance, an FSA direct operating loan charged a 5% interest rate, while a direct farm ownership loan charged 6% interest. FSA loan rates fluctuate depending on Federal Reserve moves.

FSA also offers loan guarantees to lenders, which includes its Preferred Lender Program. The benefit of a loan guarantee is that the credit line could be substantially larger -- up to $2.2 million for a guaranteed operating loan versus $400,000 for a direct operating loan. Guaranteed loans also give producers the opportunity to establish a business relationship with their local bank or Farm Credit lender. The downside of a guaranteed loan is the farmer's interest rate could be significantly higher. USDA allows guaranteed lenders to charge up to 6.75% above the Department of the Treasury rate for a loan up to five years, or 5.5% higher for extended loans such as farm ownership loans.

FARMER PERSPECTIVE

Montana farmer John Wicks received his first FSA loan to buy cattle when he was 14 years old, and that eventually helped finance his college costs. He also was able to buy a combine quickly with an FSA Beginning Farmer Loan when the farm's combine broke down at the start of harvest. At the time, he says his bank was unable to extend another line of credit.

"That not only saved our harvest but also helped me build equity in our operation," Wicks says.

Talking about succession, he says an FSA Farm Ownership Loan made it easier to take over his family farm and the generational debt tied to it "to a relatively safe loan option." Still, the farm ownership loan took months even though the seller was his mother, Wicks says. He didn't have to worry about losing the land, but that would not work trying to buy land from outside the family. His mother's bank also was willing to wait for the FSA process.

"It was kind of a hard process to go through from start to finish, and it takes quite a bit of time," Wicks says. "If you were in a situation where somebody was forced to sell quickly, I don't think it would have been quick enough to get a deal done."

But, an FSA loan typically isn't practical in a situation such as a farm auction in which the sellers want to close a deal in 45 to 60 days.

A preapproval option would be a lot more convenient. With loan guarantees and cosigners, a farmer would then be in a better position to pull the trigger when a land sale comes up.

"That would be a really great tool for young producers and really for established producers who are trying to expand," Wicks says.

This point repeatedly comes up in the case of a land auction that requires closing the sale within 60 days. That typically is a lot quicker than it takes to close an FSA loan.

"You might have somebody outbid you while you are going through all the loan approval," he says. "Preapproval would be great."

Wicks called on Congress to adjust loan limits and make it more feasible for farmers to restructure their debt. He also feels it's important to accelerate the speed of loan approvals.

BANKER PERSPECTIVE

Brian Gilbert, vice president and ag banking manager at First National Bank, Sioux Falls, South Dakota, says his bank relies on FSA loan guarantees especially for beginning farmers. The guarantees allow producers to provide lower down payments for those lines of credit.

"Our partnership with them has really expanded in the last couple of years, when some of our more sophisticated younger borrowers utilized joint financing, where they'll finance a portion -- 45% -- and we'll finance 50%," Gilbert says.

Bankers in general would like to see FSA both increase its limit on guaranteed loans while also speeding up the approval process. Farmers in general face higher capital requirements to effectively compete today.

"It's just so hard to enter this market because of the capital intensity and means that are required today if we want the next generation to stay in agriculture," Gilbert says. "We need access to more capital through the FSA programs to help banks lend money to that next generation."

Independent Community Bankers of America (ICBA) has proposed a USDA Express Loan Program that would require FSA to approve guaranteed loan applications within a couple of days in exchange for having a lower guarantee amount of 50 to 75% levels for loans up to $1 million.

"It would be a nice tool for us to just be able to move things through a little quicker and get people what they need," Gilbert says. "This world moves way quicker than it used to, so quick access to credit is very essential at this stage."

Another big issue Congress and USDA should consider is allowing producers to refinance a bridge loan. This would help solve some of the slower approval times by FSA. A bank could provide a bridge loan on a farm if it knew FSA would refinance it for the farmer. USDA doesn't allow that option.

"FSA won't allow you to just refinance that original purchase with that person that bought the ground that the bank financed, and that really needs to be changed, because it's not so much that we need the real-estate loans to go quicker, but we need the flexibility to be able to do a bridge loan for 90 or 120 days, and then refinance it with FSA," Gilbert says.

Refinancing a bridge loan or providing some type of FSA preapproval on a loan would go a long way toward helping beginning farmers, he adds.

"That is a huge thing for people trying to come back to the farm, because the FSA interest rate is much more favorable than traditional financing right now."

LOWER INTEREST RATES FROM RURAL BANKS

The American Bankers Association (ABA) for years has pressed Congress to level the playing field with Farm Credit lenders by providing some tax relief on interest rates. The One Big Beautiful Bill Act included a provision that will exclude from a bank's gross income 25% of interest on qualified agricultural real estate. ABA states that farmers will benefit by rural banks passing on that interest rate savings to them. The provision went into effect immediately when signed into law in July.

ALL QUIET ON DOGE FRONT

In early May, USDA granted authority to the Department of Government Efficiency (DOGE) to review and approve FSA loans and guarantees over $500,000, as well as all loans to entities such as limited liability companies (LLCs) or corporations. More than one-third of USDA's farm loan dollars, about $1.7 billion, would fall under the DOGE mandate. USDA stated the order was meant to fulfill a White House executive order on government efficiency.

"We recognize the potential impact that this effort may have on our customers, lending partners and FSA staff, and are committed to ensuring minimal disruption to service delivery," Bill Beam, USDA's FSA administrator, states in a note to USDA staff that went along with the memo.

USDA has not released any further details about DOGE's role reviewing FSA loans.

USDA LOAN NUMBERS

In the grand scheme of farm loans, FSA remains a relatively small lender overall, accounting for $5.39 billion through 24,555 total loans.

In comparison, the Farm Credit System provided $186.8 billion in real-estate loans in 2024 and $75.7 billion production or intermediate loans.

Banks also issued $115.1 billion total agricultural loans in 2024, which included $49.3 billion in operating loans to farmers.

POTENTIAL REVISIONS TO FSA LOAN PROGRAMS

Congress will more than likely make some adjustments to Farm Service Agency (FSA) loan programs when lawmakers get around to writing several sections of the farm bill, such as the credit title, which was not addressed in the One Big Beautiful Bill Act signed by President Donald Trump in July.

The House and Senate have both introduced bipartisan bills that closely align on proposed changes to FSA loans.

Some possible revisions include:

-- FSA Direct Ownership Loans: Increase the $600,000 limit to $850,000.

-- Guaranteed Ownership Loans: Raise from $2.2 million to $3.5 million, and index the cap for inflation.

-- FSA Direct Operating Loans: Increase from $400,000 to $750,000.

-- Guaranteed Operating Loans: Raise from $2.2 million to $3 million, and index the cap for inflation.

-- Microloans: Double the limit from $50,000 to $100,000.

-- Refinancing: Allow distressed guaranteed loans to be efinanced into direct loans.

-- Expand EZ Guarantee Loan Program: This would allow for faster approval times.

-- Eligibility: Adjust requirements for FSA Direct Ownership from three years of farm management to one year of experience.

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