If you’re looking into starting your own farming business, you’ve probably also begun to look into farm loan options. And if this is your first time, you may also feel slightly overwhelmed by the loan selection and application process.
Don’t worry – you’re not alone! Many aspiring farmers struggle in the early stages to find the right loan option for their business goals and budget. Thankfully, you don’t need to navigate the complexities of the process on your own. When you work with the right lender, you’ll have a much easier time finding the right loan option.
In this article, we’ll highlight the need-to-know differences between two major loans for farmers: direct loans and guaranteed loans. We’ll also walk you through some of the most important benefits and drawbacks of both options.
What’s the Difference Between a Direct Loan and a Guaranteed Loan?
The United States Department of Agriculture (USDA) offers two primary types of loans to aspiring farm owners: Direct and Guaranteed.
The more popular of the two is the USDA guaranteed loan. This loan option is typically provided to families with a low-to-moderate household income. It can also be funded through private lenders, which makes it relatively easy to access.
A USDA direct loan, on the other hand, is only provided to families with a very low household income. In contrast to the USDA guaranteed loan, a direct loan cannot be funded through a private lender.
Comparing the Benefits of a USDA Direct Loan Vs. Guaranteed Loan
A USDA direct loan can make it easier for very low-income individuals to purchase a property and repay their loan. There’s very little flexibility around property size with this loan option, though. With a USDA direct loan, the maximum property size that can be acquired is 2,000 square feet.
The USDA guaranteed loan – which has higher income limits – offers a bit more flexibility. This loan comes with zero money down financing, and it will include future renovation costs. In other words, it provides a much more comprehensive financing plan for larger farming operations.
Start Comparing Loans for Farmers Today
The key to choosing the right loan and to expediting the application process is to work with the right lender. At MSF Agriculture, we specialize in helping farmers find a loan option that will be maximally affordable, flexible, and beneficial. To learn more about our services or to start comparing different loans for farmers, please contact our office today!