If you want to buy or expand a farm and cannot secure financing from a traditional lender, you may be eligible for an FSA Direct Loan. The FSA Direct Loan provides funds to purchase or expand a farm up to a loan amount of $300,000. The funds come directly from the USDA and not a lender.
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What are the requirements for the
FSA Direct Loan? In particular, what security or collateral do you need?
Keep reading to find out what you need.
The Required Security and Collateral
The USDA takes a large risk giving you funds to purchase or expand your farm. In exchange for that risk, they ask that you provide collateral up to 150% of the value of the loan. At the very least, you’ll need security that is equal to 100% of the loan amount.
The typical collateral for an FSA Direct Loan is the farmland itself, equipment, livestock, or crops. The FSA bases the value of the collateral on the fair market value according to a recent appraisal. All security used for the FSA Direct Loan must also have insurance to protect it.
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Responsibility for the Security and Collateral
As an FSA borrower, you agree to some of the following responsibilities to care for the security or collateral on the FSA Direct Loan:
- Caring for the livestock appropriately including feeding and caring for their physical health
- Keeping all land and buildings in good condition, providing maintenance as necessary
- Keeping up with all real estate taxes and insurance dues
Qualifying for the FSA Direct Loan
Aside from the necessary security or collateral for the FSA Direct Loan, you must also meet the following requirements:
- You must prove that you cannot secure financing for your farm from any other program
- You must have a ‘fair’ credit history
- You must not have any defaulted federal debt, whether FSA or otherwise
- You must prove that
you can afford the loan and will do what is necessary to refinance the debt within the next seven years
If you meet these requirements, you may be eligible for an FSA Direct Loan. Keep in mind that this type of financing is meant to be temporary. The FSA wants to give you the ‘boost’ you need to become a farm owner, but they also want you to take responsibility to get yourself into a financial position where you can qualify for financing outside of the FSA programs eventually.
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