The Federal Farm Loan Act is a law passed by the United States Legislature and signed into law by President Woodrow Wilson in 1916. It was created in response to small farmers struggling to keep up with the production of larger farming businesses. It created the Farm Credit System — a network of banks with federally backed funds with the specific purpose of promoting investment in small farms. The law allowed these banks to lend to small farmers up to 50% of the value of their land as well as up to 20% of the improvements the farmers had made on their land.
The Federal Farm Loan Act sought to even the playing field between smaller and bigger farmers. In the early 1900s, the attitude of small farmers in the Midwestern United States was that of angst toward big business. This was just one faction of a larger movement to regulate the growing power of big business moguls who held monopolies over their respective industries. This growing angst gave rise to what is known as the Progressive Era in the United States, which lasted from the 1890s into the 1920s. The Progressive Era was a time of activism in which actions were taken to make government and large businesses accountable for their uses of power.
The Federal Farm Loan Act is one of the most famous pieces of legislation passed during the Progressive Era in the United States. During this period, the United States Legislature passed several laws geared toward regulating big businesses and exposing corruption. This piece of legislation is often credited along with the Sherman Anti Trust Act and the Clayton Anti Trust Act as being strong legislation that helped to fulfill the aim of breaking up big business control in the United States during this period.
The Federal Farm Loan Act attempted to accomplish its aims through the creation of the Farm Credit System, a system of banks designed to cater specifically to people operating smaller farms. Through these banks, small farmers were able to take on up to 50% of the value of their land plus 20% of the improvements made on the land, including soil improvement and structures. The United States government provided each bank with $500,000 (USD) for lending to small farms. Through this government backing, banks were able to provide competitive rates on loans to qualified small farms and encourage investment.