Loan Programs Offered by the Farm Service Agency

Loan Programs Offered by the Farm Service Agency
Frank M. Rodgers, Chief
Farm Loan Programs
Farm Service Agency
Nashville, TN

Background / Purpose and Goal

The Farm Loan Programs available through the Farm Service Agency provides financial and technical assistance to rural America through Direct Loans, Guaranteed Loans, and supervised credit. This service has been performed under the successive names of Resettlement Administration (1935), Farm Security Administration (1937), Farmers Home Administration (1947), and currently the Farm Service Agency (1995).

The agency's original function was to make loans and grants to Depression stricken families and help them regain self sufficiency in making their living -on family farms. Overall, the purpose of the Farm Loan Programs is to serve as a temporary source of supervised credit and technical support for rural Americans for improving their farming enterprises until they are able to qualify for private sector resources. The goal is to help farmers attain self sufficiency and to "graduate" to commercial credit as soon as possible.

These Farm Loan Programs fill a niche which enables the Agency to provide assistance to farmers who cannot obtain credit through traditional commercial sources at reasonable rates and terms.

The Agency's customer base tends to be higher risk due to start up status or operations experiencing setbacks due to economic conditions, production or other difficulties. We provide temporary assistance to those persons to allow opportunity to regain economic and production viability and eventually move to commercial sector credit.

These loan programs do not compete with commercial lenders or the Farm Credit System, but compliment them by seeking to get potentially viable producers through a temporary period of difficulty when other credit is not available.

U.S.D.A.'s Farm Service Agency makes loans and guarantees loans and provides credit counseling and supervision to farmers and ranchers who are temporarily unable to obtain private, commercial credit. These applicants may be beginning farmers who can not qualify for conventional loans because of insufficient net worth, or established farmers who have suffered financial setbacks from natural disasters. These loans are tailored to a producer's needs and may be used to buy farmland and finance agricultural production.

Everyone, especially farmers, need financial help sometime. Hopefully, FSA can help with loan programs and services to meet the farmers farming needs and help them to qualify for commercial credit.

The Farm Service Agency lends money and provides credit counseling and supervision to eligible applicants who operate family size farms. We offer several types of loan programs. Under the guaranteed Loan program, FSA guarantees loans made by conventional agricultural lenders for up to 95% of the principal. Farmers interested in Guaranteed Loans apply directly with a conventional lender, who then arranges for the guarantee.

For those unable to qualify for Guaranteed loan, we offer Direct Loans, which are made and serviced by FSA officials. Funding however, is more limited and applicants must wait sometimes until funds are available. Especially for real estate loans.

Types of Loans and Purposes They Can Be Used For

Farm Ownership Loans - with a direct or guaranteed Farm Ownership Loan, a farmer can purchase farmland, construct of repair buildings and other fixtures, and develop farm land to promote soil and water conservation. In addition, Guaranteed Farm Ownership Loans can be used to refinance debt.

The maximum loan size for a Direct Farm Ownership loan is $200,000 and the interest rate is currently 5.75%. Guaranteed Farm Ownership Loans can be approved up to $700,000 and the interest rate is negotiated with the lender. Repayment terms for a Farm Ownership loan can be up to 40 years.

Operating Loans - may be used to purchase items needed for a successful farm operation. These items include livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance, and other operating expenses. Also, Operating Loans can be used to pay for minor improvements to buildings and to refinance debts under certain conditions. The maximum amount for a Direct Operating Loan is $200,000 with the current interest rate being 5%. FSA can guarantee Operating Loans up to $700,000. As with all guaranteed loans the interest rate is negotiated with the lender. Repayment terms for both Direct and Guaranteed Operating Loans are up to 7 years. The terms available are dependent upon the use of the loan funds and the expected date of the income produced.

Youth Project Loans - This is a very important and worthwhile program we offer to young people that qualify. The Youth Project Loans or Youth Loans as they are commonly referred, assist individual rural youths to establish and operate income producing projects of modest size in connection with their participation in 4-H Clubs, Future Farmers of America, and similar organizations.

Each project must be part of an organized and supervised program of work. The project must be planned and operated with the help of the organization adviser, produce sufficient income to repay the loan, and provide the youth with practical business and educational experience. To qualify for a Youth Loan, the individual must (1) be a citizen of the United States, (2) be at least 10 years old and under 21 years old, (3) live in open country of a town of less than 10,000 population, (4) be unable to get a loan from other sources, and (5) must be capable of planning, managing, and operating the project under guidance and assistance from a project advisor. The project advisor must recommend the project and the loan and agree to provide supervision. These Youth Loans can be up to $5,000 and can finance nearly any kind of income producing project. Some common projects include livestock and crop production, lawn and garden services, repair shops, and roadside stands.

Eligibility Requirements

We have other loan programs available, but these 3, (Farm Ownership, Operating, and Youth) are the major loan programs FSA offers. I'll address the other loan types in a few minutes, but first I want to discuss the eligibility requirements for the Farm Ownership and Operating Loan programs.

These are the eligibility requirements for the Farm Ownership and Operating Loan Programs, both Direct and Guaranteed. A loan applicant must: " have sufficient education, training, or experience in managing and operating a farm which indicates the managerial ability needed to succeed in farming. In other words, the applicant must know what they are doing. be a citizen of the United States or legal alien have the legal capacity to incur the obligation of the loan be unable to obtain sufficient credit elsewhere at reasonable rates and terms to finance needs. This is slightly different for Guaranteed Loans " be the owner or tenant operator of a family farm after the loan is closed. " have not had previous Direct or Guaranteed Loan which resulted in a loss to the agency and not be delinquent of any Federal debt In addition to meeting the eligibility criteria, the loan applicant must have a satisfactory credit history, demonstrate repayment ability, and provide sufficient security for the loan.

Steps in Direct Loan Processing

1.    The loan applicant contacts the FSA office and receives an application package.
2.    The loan applicant completes the application. (if needed, FSA will assist the applicant in completing the         application)
3.    FSA and the loan applicant meet to review and discuss application.
4.    FSA will determine whether or not the applicant is eligible for the loan programs.
5.    FSA and applicant will develop a business plan or Farm and Home Plan. This plan will help determine if the proposed operation will cash flow, is adequate collateral is available, and compliance with other regulations.
6.    If the plan reflects adequate repayment ability, and collateral, FSA will approve the loan and obligate the funds.
7.    The loan is closed and the loan applicant receives the funds. The applicant now becomes a borrower.

Steps in Guaranteed Loan Process

It is important for me to remind you that with a Guaranteed Loan, the recipient of the loan is not indebted to the FSA or government. The loan is from a conventional lender such as a bank or Farm Credit Services office. The role of FSA is to provide a guarantee to the lender in the event of any loss. The steps in processing a guaranteed loan are:

1.    The applicant and Lender complete the guaranteed loan application and submit it to FSA. As with a Direct Loan application, FSA will assist in the completion of the application if necessary. FSA reviews the loan for eligibility, repayment ability, collateral, and compliance with other regulations
2.    FSA approves and obligates the loan.
3.    FSA will issue a Conditional Commitment to the lender indicating funds have been set aside, and the loan can be closed.
4.    Lender closes loan, farmer receives loan funds. FSA issues loan guarantee to the lender.

Let me now recap what I have addressed so far, I've reviewed the major loan types, what the loans can be used for, the eligibility requirements, the interest rates, the loan terms, and the steps that are followed in processing Direct and Guaranteed Loans.

Other Loan Programs Offered by FSA

Downpayment Farm Ownership Loans - FSA has a special Downpayment Farm Ownership Loan program to assist beginning farmers to purchase a farm. This program also provides a way for retiring farmers to transfer their land to a future generation of farmers. The program works like this:

the applicant must make a cash downpayment of at least 10 percent of the purchase price.
FSA may finance 30 percent of the purchase price or appraised value, whichever is less. The term of the loan is for 10 years at a fixed interest rate of at least 4%.
The remaining balance, not to exceed 60 percent of the purchase price, may be obtained from a commercial lender or a private party, and FSA can provide up to a 95% guarantee if financing is obtained from an eligible commercial lender.
The purchase price or appraised value, whichever is lower, may not exceed $250,000. This program is also commonly referred to as the 60 - 3 0 - 10 program. Meaning 10% down payment 30% Direct FSA loan, and 60% from another source.

Beginning Farmer Loans - in addition to the other eligible criteria, a beginning farmer must: 0 have operated a farm for at least 3 years, but not more than 10 years. 0 does not own a farm greater that 25 percent of the average size farm in the county. * if an entity, all members must be related by blood or marriage.

Emergency Loans - Emergency loans help cover production and physical losses in counties declared as disaster areas by the President or designated by the Secretary of Agriculture. The fanner must be an established farmer who suffered a qualifying physical loss, or a production loss of at least 30 percent in any essential farm enterprise.

Emergency Loan funds can be used to restore or replace essential property, pay all or part of production costs associated with the disaster year, pay essential family living expenses, reorganize the farming operation, and refinance debts.

The Emergency Loan limit is up to 80% of the actual production loss or 100% of the actual physical loss, with a maximum indebted of $500,000.

Where to Apply for FSA Loan Assistance

For Direct Loans, farmers apply at the local Farm Service Agency county office serving the area in which you expect to carry out your operation. For a Guaranteed Loan, the farmer will need to apply to a commercial lender who participates in the Guaranteed Loan programs. If a farmer is unable to locate a lender, the local FSA office will assist you in locating one.

There are some costs associated with obtaining a Direct or Guaranteed Loan. FSA requires the applicant to pay a credit report fee and in addition, if a loan if made, the farmer pays the fees charged for lien searches and for filing and recording the security instruments.

For Guaranteed Loans, the fees charged by the lender must not exceed those charged to a lender's normal farm customer. In some cases, FSA does charge the lender a guarantee fee which may be passed on to the applicant.

Closing I realize I have covered a great deal of material here today, but my purpose is to make you aware of the loan programs offered by FSA. If I covered any areas to quickly or did not address any questions you may have had, additional information may be obtained by contacting your local Farm Service Agency office and asking to speak to a Farm Loan Officer, also I have brochures available. Thank you.

Mailing Address for this Author: U.S. Department of Agriculture, Farm Service Agency, Tennessee State FSA Office, 579 Federal Building, 801 Broadway, Nashville, TN 37203-3816

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