A Victory for Small Farmers: New USDA Loans for Local Food Producers

On Tuesday, January 15th, the USDA announced a new small loan program that will benefit farmers who supply local markets. The new low-interest microloans of up to $35,000 will provide funding for startup enterprises, support for existing farms, and aid to minority and veteran farmers.

This victory for local food producers also marks the achievement of an important goal of RAFI’s work on credit policy. RAFI staff advocated for the new loan program in meetings at the White House and worked to inform USDA officials on the lending needs of small and family farmers.

Access to credit remains a major issue for small and mid-sized farmers. Many farmers find their financing options limited to taking out unwieldy loans from commercial banks, applying for traditional FSA loans, or running up credit card debt.

New alternative loan programs like the latest initiative by USDA help fill the funding gaps for small farmers. According to the USDA news release, the loans can be used to pay for “initial start-up expenses such as hoop houses to extend the growing season, essential tools, irrigation, delivery vehicles, and annual expenses such as seed, fertilizer, utilities, land rents, marketing, and distribution expenses.”

“In our experience, this scale of credit often replaces credit cards in farm financing, significantly reducing the cost of access to capital,” said RAFI Executive Director Scott Marlow of the new small loan program.

Microloans also aid farmers in getting on the lending track. As their farm enterprises grow, along with their lending needs, loan recipients can apply for additional FSA operating loans up to $300,000 or seek financing from commercial lenders. While the microloans are unlikely to cover all of the expenses of a startup enterprise, they do allow small farmers to build equity and a credit history, in turn enabling them to access other forms of credit.

Another benefit to the new microloans is the micro-sized paperwork required to apply for them. The new loans have a simplified application form–just 7 pages long–that is significantly shorter than traditional loan applications. The loans will be administered under the Farm Service Agency’s Operating Loan Program.

More in-depth details on the new loans can be found in the USDA news release here.

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