What is the difference between guaranteed and direct?
In a direct loan, FSA lends the money and services the loan. In a guaranteed loan, a commercial lender makes and services the loan, and FSA backs a portion of the risk. FSA's loan overview materials explain the difference.
Each has different paperwork, terms and relationships. Moving from one to the other means changing lenders and rules.
Because the two types of loan come with different servicing, some borrowers find the day-to-day experience changes more than the numbers do. Because the details differ, ask each lender to explain in plain terms who services the loan, who you call with questions, and what happens if you need help during a bad year.
Why might a borrower consider the switch?
Reasons include the hope of different terms, a lender that is leaving agricultural lending, or a change in the operation. FSA says its direct loans are generally meant for those who cannot get credit elsewhere on reasonable terms.
Because of that, you cannot assume you qualify. Ask the county office whether a refinance request fits current rules.
A short written summary of why you want to switch helps you test your own reasons. If the main goal is lower payments, ask whether other tools could achieve that.
- Lender change or exit
- Different payment structure
- Changes in the farm business
- Struggles with current terms
Is refinancing into a direct loan allowed?
The answer depends on the loan type and current regulations, including how FSA treats refinancing of debts. Specific current wording was not retrieved for this article, so check the official loan pages and ask staff directly.
If the request is allowed, expect a full review of eligibility, repayment ability and collateral, just as for any new application. If you are told something that sounds too good, such as a promise that you will certainly qualify, ask for it in writing. Honest staff will not guarantee outcomes.
What should I compare before deciding?
Look at total cost over the life of the loan, not just payments. Compare fees, how rates are set, prepayment terms, and servicing practices. FSA publishes current rates, which change regularly, so check the official rate page.
Ask your current lender for a payoff statement and a list of any fees or penalties for early payoff.
Some costs are easy to miss, like appraisal, title and legal fees. Ask for a full list from each lender so you can compare apples to apples. Check how interest is calculated, whether it is fixed or variable, and how payments are applied. Small differences in structure can change the real cost over many years.
What risks should I think about?
A refinance can reset the clock on terms. You may give up something you value, such as a close relationship with a local banker, or face a different servicing approach.
There is also the question of timing. Loans may take weeks, and your current loan may still require payments in the meantime.
Also consider how the change affects any co-signers, partners or landlords who signed documents tied to the existing loan.
- Costs of paying off the old loan
- Loss of an existing relationship
- Different servicing rules
- Delays during the transition
What if I am struggling with payments?
If you are behind or worried, talk to your lender and FSA early. Options such as restructuring may exist in the guaranteed program, and staff can explain them. Waiting makes choices narrower.
Extension and farm financial counselors can help you review the numbers calmly.
If you are already past due, say so right away. Lenders and FSA have more options when they hear early, and farmers who wait often have fewer. Keep copies of all letters from your lender, and keep making payments on time until a written payoff has been completed.
What should I bring to the conversation?
Bring your current loan documents, payment history, financial statements, and a clear explanation of why you want to change. Ask each lender to put key points in writing.
Have a CPA review tax effects, and an attorney review any legal changes to your collateral.
Finally, ask how long the whole process is expected to take, and whether your current lender will cooperate on the payoff timing. Ask each lender for a named contact.
Key takeaways
- Direct and guaranteed loans are different structures with different lenders and rules.
- Whether a refinance is allowed depends on current rules, so ask FSA and your lender.
- Compare total cost, fees and servicing, not only the payment.
- Talk early if you are struggling with payments.
Sources and official links
Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.