federal reserve

USDA Microloans for Farmers: Participation Patterns and Effects of Outreach

DanIndustry News Release

by Sarah Tulman, Nathaniel Higgins, Robert Williams, Michael Gerling, Charles Dodson, and Bruce McWilliams, Economic Research Service

What is the Issue?

USDA’s Farm Service Agency (FSA) launched its Microloan program in January 2013 with the goal of better serving the needs of small farms, beginning farmers and ranchers, farmers and ranchers from historically socially disadvantaged groups (or SDA—women and racial and ethnic minorities), and veterans. The maximum size of a Microloan was originally set at $35,000 and was raised to $50,000 in November 2014 by the Agricultural Act of 2014. Compared to FSA’s traditional Direct Operating Loans (DOLs), which have a maximum limit of $300,000, Microloans are designed to be more convenient and accessible to groups not traditionally served through FSA’s credit programs. Other features of the Microloan program include a streamlined application process and more flexible requirements for farming experience and the reporting of production history to qualify for a loan.

This report analyzes the composition of Microloan recipients, both overall and across the targeted groups, and also compares them with recipients of Microloan-sized traditional DOLs (small operating loans (small OLs)). ERS researchers also assess the number and composition of new FSA direct loan borrowers whom the Microloan program attracted during its first 3 years. These are then compared with those of small OLs. Finally, researchers test the effect of disseminating targeted information about the Microloan program on farmers’ interest in and receipt of Microloans.

What Did the Study Find?

From January 2013 to November 2015, the Microloan program grew from 3,833 loans with total loan obligations of $88.8 million in 2013 to 5,674 loans and total loan obligations of $162.2 million in 2015 (through mid-November). During this time, some broad patterns appeared:

  • Farmers belonging to targeted groups received 89 percent of all Microloans, of which beginning farmers accounted for the majority, at 81 percent of all Microloans. SDA farmers accounted for 35 percent of all Microloans, and 79 percent of those were received by borrowers who were also beginning farmers.

— Farmers in targeted groups received a larger share of Microloans than of small OLs.

— However, they also received a sizeable share (82 percent) of small OLs, with 74 percent going to beginning farmers and 26 percent to SDA farmers.

A comparison of borrowers who received Microloans and small OLs reveals the extent to which new borrowers participated in the Microloan program:

Read the full USDA Microloans for Farmers: Participation Patterns and Effects of Outreach report.