Finance and Credit – An Overview


Farmers often borrow large amounts of capital and incur sizeable debts in order to operate and maintain their farming operations. Therefore, the complex network of state and federal statutes, regulations, case law, and lending institutions that comprise the area of farm credit is significant to Any involved in of agricultural production.

Sources of Agricultural Capital

The largest sources of capital for agricultural producers are (1) commercial banks, (2) the Farm Credit System, (3) the Farm Service Agency, and (4) insurance companies. Additional sources of agricultural credit include individuals, cooperatives, processors, and agricultural machinery and input suppliers.

The Farm Credit System

The Farm Credit System (“FCS”) is a network of federally-chartered, privately-owned banks and associations that provide short- and long-term loans to eligible agricultural producers and their cooperatives. See generally 12 U.S.C. §§ 2001-2279cc (setting forth statutory provisions governing the Farm Credit System). Prior to the creation of the FCS, lenders avoided agricultural borrowers because of the risks inherent in the agriculture industry. To combat this, the Federal Farm Loan Act of 1916 created the FCS and the System has undergone many changes since its creation. See Christopher R. Kelley & Barbara J. Hoekstra, A Guide to Borrower Litigation Against the Farm Credit System and the Rights of Farm Credit System Borrowers, 66 N.D. L. Rev. 127–49 (1990) (providing an excellent overview of the complex history and development of the Farm Credit System). The original purpose of the FCS has not changed:

It is declared to be the policy of the Congress, recognizing that a prosperous, productive agriculture is essential to a free nation and recognizing the growing need for credit in rural areas, that the farmer-owned cooperative Farm Credit System be designed to accomplish the objective of improving the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit and closely related services to them, their cooperatives, and to selected farm-related businesses necessary for efficient farm operations. 12 U.S.C. § 2001(a).

The FCS also provides loan funds to Agricultural Credit Associations (ACAs), Production Credit Associations (PCAs), Federal Land Credit Associations (FLCAs), as well as one Agricultural Credit Bank (ACB). ACAs are associations formed from the merger of at least one stand-alone Federal Land Bank Association, referred to as a FLCA, and at least one PCA. Because of this structure, ACAs have the power to issue agricultural production and real estate mortgage loans of varying term length, from short- to long-term. PCAs are local associations that provide short-term loans directly to producers and farm-related businesses from funds received from Farm Credit Banks. PCAs also provide short- and intermediate-term loans to producers from funds received from investors in money markets. Currently, all PCAs are ACA subsidiaries. An FLCA is a federal and state tax exempt association that has the authority to make direct, long-term real estate loans. CoBank, only ACB, provides all types of loans to agricultural and aquacultural rural cooperatives and has the authority to finance agricultural exports and to provide international banking services for producer-owned cooperatives.

The FCS is organized as a cooperative and is supervised and regulated by the Farm Credit Administration (“FCA”). The FCA is not an agency within the USDA but rather an agency within the executive branch of the federal government. To learn more about the FCA and the FCS, visit,See also (setting forth guidelines and requirements governing the Farm Credit Administration).

Farm Service Agency

The Farm Service Agency (“FSA”) is an agency within the USDA. One of the functions of the FSA is to administer the federal loan programs for farmers, among many other functions. The FSA is intended to serve as a lender of last resort for farmers who cannot otherwise obtain commercial loans at reasonable rates. This demographic often includes young or beginning farmers or farmers who do not have sufficient financial resources to obtain a conventional commercial loan. The FSA offers two types of loans: direct and guaranteed.

Under the guaranteed loan program, the FSA guarantees up to ninety-five percent of losses on certain types of loans made by commercial lenders to farmers for up to $2,236,000. Thus, guaranteed loans involve a direct relationship between the farmer and the commercial lender. There are two types of guaranteed loans: farm ownership loans and operating loans.

Guaranteed farm ownership loans are available for buying farmland, building and repairing buildings and other fixtures, developing farmland for soil and water conservation purposes, and refinancing debt. Guaranteed operating loans are available for purchasing items necessary to maintain a successful farming operation, including livestock, equipment, feed, seed, fuel, fertilizer, pesticides, repairs, and insurance. Guaranteed operating loans can also be made to finance minor improvements to buildings, land and water development, family living expenses, and, subject to certain conditions, to refinance debt. See 7 C.F.R. pt. 762 (setting forth regulations governing guaranteed farm loans).

The FSA also offers the “EZ Guarantee Program,” which is a simplified guaranteed loan meant to help small, new or undeserved family farmers with early financial assistance. This program is open for operating or ownership loans of up to $100,000.

Farmers who are unable to qualify for a guaranteed loan may be eligible for a direct loan. Unlike guaranteed loans, direct loans involve a direct relationship between the farmer and the FSA. There are three common types of direct loans: farm ownership, operating, and emergency loans. See 7 C.F.R. pt. 1943 (direct farm ownership loans);  7 C.F.R. pt. 1941 (direct operating loans); 7 C.F.R. pt. 764 (emergency loans). Direct farm ownership loans are available for purchasing farmland, constructing and repairing buildings or other fixtures, and promoting soil and water conservation for up to $600,000. Similar to guaranteed operating loans, direct operating loans are made for purchasing items necessary to maintaining a successful farming operation, specifically including the same items covered under by guaranteed operating loans. Direct operating loans are made up to $400,000. Emergency loans are direct loans that are available to farmers who are unable to obtain from other credit sources the funds needed to remedy the damage caused by adverse weather or other natural disasters.

Other types of farm loans through FSA include Microloans and Native American Tribal Loans. For short descriptions of each of the available FSA loans, please visit the FSA website here.

Farm Credit and Discrimination

For decades, farmers in the BIPOC (Black, Indigenous, People of Color) and other underserved communities have been disproportionately affected by unfairly limited access to the credit needed to operate their farm or ranch businesses. In part, this stems from previous well-documented discriminatory practices by both private lending institutions and USDA. For instances, in order to obtain a loan, some BIPOC producers were required to pledge excessive amounts of land as collateral, accept unfavorable loan terms such as high interest rates, and wait long periods of time before receiving money from their lender. Without the financing needed to successfully run a farming operation, many BIPOC producers were into foreclosure. This has led to land loss and a decline number of BIPOC producers in the agricultural industry.

Due to this long-standing discrimination, a class action discrimination lawsuit was filed by Black farmers against USDA in Pigford v. Glickman. Before the trial date, the parties reached a settlement agreement and the U.S. government paid almost $1 billion to approximately 13,500 farmers who suffered from discriminatory lending practices. Unfortunately, numerous producers did not have their claims heard under the settlement. As a result, Congress included a provision under the 2008 farm bill that allowed for these claims to be heard, which is commonly referred to as Pigford II. Ultimately, Congress appropriated $1.2 billion to settle the discrimination claims under Pigford II. Other producers in the BIPOC and underserved communities, including Native American (Keepseagle class), Hispanic (Garcia class), and female farmers (Love class), filed similar lawsuits alleging discrimination against USDA. The Keepseagle class reached a settlement agreement with USDA in 2011, but the Garcia and Love classes were unable to obtain class certification, which resulted in their claims being denied review by a court. As a result, USDA initiated its own administrative claims process to provide relief to Hispanic and women farmers who were discriminated against by the agency between 1981 and 2000.

Today, BIPOC producers still face challenges that hinder their ability to obtain agricultural credit. For example, BIPOC producers are more likely to operate smaller farms, which means they may not be eligible for as much credit. According to the U.S. Government Accountability Office, BIPOC producers receive lower farm revenues, and lenders perceive this as a financial risk for loan repayment. Further, some BIPOC producers do not have clear title to their land due to heirs property issues, making them ineligible for certain agricultural loans.

In March 2021, Congress passed the American Rescue Plan Act (ARPA) of 2021. Under § 1005 of the ARPA, Congress instructed USDA to provide debt relief for minority or socially disadvantaged farmers and ranchers. However, several farmers challenged the debt relief program alleging it violated their equal protection rights under the U.S. Constitution. As a result, USDA was prohibited from distributing debt relief payments under the program. In August 2022, Congress enacted the Inflation Reduction Act (IRA), which directs USDA to provide debt relief to “distressed borrowers” whose farming operations are at financial risk, which is a designation not based on race. Additionally, the IRA allocated $2.2 billion in financial assistance to farmers, ranchers and forestland owners that experienced discrimination in a USDA lending program prior to January 1, 2021.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, prohibits creditors from discriminating on a “prohibited basis” against an applicant with respect to any aspect of a credit transaction. Specifically, the ECOA provides the following:

It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction-

(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);

(2) because all or part of the applicant’s income derives from any public assistance program; or

(3) because the applicant has in good faith exercised any right under this chapter.

15 U.S.C. § 1691(a)

The ECOA defines a “creditor” as “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.” Id. at § 1691a(e). Thus, the term “creditor” is broadly defined and essentially includes all creditors, including the FSA.  Any creditor who violates the ECOA may be subject to an individual or class action for actual and punitive damages, an action for equitable and declaratory relief, and an assessment of costs and attorney fees. See id. at 1691e.