USDA Loan Modernization Act Opens Farm Financing to 50% Owners and Complex Business Structures

If you’re in the business of farming, you know getting a USDA loan—whether for real estate, operations, or emergencies—often hinges on proving you’re the one running the show. The USDA Loan Modernization Act updates the eligibility rules for these loans, largely by changing what it means to be an owner-operator and making room for more complex business arrangements. Essentially, the bill changes the ownership requirement from needing to own “a majority” (more than 50%) of the farm to owning “at least a 50 percent” interest (Sections 2, 3, and 4). This small wording tweak could slightly widen the door for partners who share ownership equally.

The 50% Rule and the Rise of Embedded Entities

The most significant changes are aimed at updating eligibility for modern farm structures. Previously, if you applied for a loan, the rules were rigid about who had to own what. This bill introduces new ways to qualify, especially for entities that operate the farm but don’t own the land, or for entities owned by other entities—what the bill calls “embedded entities.” For instance, an entity that only operates the farm (not the owner) can now qualify for a real estate loan if at least 50% of the operating entity is owned by the individuals who own the farm real estate (Sec. 2). For those complex, multi-layered business structures, the bill allows them to qualify if at least 75% of the total ownership interests can be tracked back, directly or indirectly, to qualified operators of the farm (Sec. 2, 3, 4). Think of a large farm where the land is held by one LLC and the equipment and operations are run by another corporation, which is in turn owned by the family trust. This bill tries to cut through that complexity to see if the actual farmers are still in control.

The Secretary’s New Power: Defining “Qualified Operators”

Here’s the part that needs attention: The bill grants automatic eligibility to anyone the Secretary of Agriculture defines as a “qualified operator” (Sec. 2, 3, 4). If the Secretary says you’re qualified, you meet the basic operator requirement for all three loan types. The bill doesn’t define how the Secretary determines who is “qualified,” which is a big deal. This gives the Secretary a lot of administrative power to decide who gets fast-tracked for these loans. For a busy farmer who just needs financing, this could be a streamlined path, but it also means the standards for qualification could change depending on who is running the USDA, potentially without clear, public guidelines.

Real-World Impact: Who Wins and Who Needs to Watch Out?

This modernization is a clear win for farms that have grown into complex business entities—partnerships, LLCs, and corporations that need flexibility in their ownership structure to manage taxes or liability. It acknowledges that not every farm is run by a single person holding a simple majority share. However, for the smaller, individual owner-operator, this bill could mean more competition for limited loan funds. By making it easier for large, complex structures to qualify, the pool of eligible applicants gets bigger. Furthermore, the reliance on the Secretary defining “qualified operators” means that if you’re not in that group, you might face a more complicated application process, or worse, you could be left wondering why the farm next door got an automatic pass when your operation didn’t. The success of this law hinges entirely on how transparent and fair the USDA is when defining who is “qualified.”