Hello again, friends;
The Farm Service Agency has a guaranteed loan program available to assist farmers and agricultural lenders. The guaranteed loans are made by a commercial lender such as a bank, savings and loan, or Farm Credit.
The Farm Service Agency provides the guarantee to the lender, not the borrower. The lender makes and services the loan. FSA can work with the lender and the borrower to complete the loan application and to work out the best loan combination.
The purpose of the guaranteed loan program is to assist lenders in extending credit to family farmers who do not qualify for standard commercial loans with the lender. It helps beginning farmers and farmers experiencing financial distress due to disasters or economic problems.
The guaranteed loan limitation changes annually based on the producer price index. The loan limitation for fiscal year 2010 is $1,112,000.
Three types. There are three types of FSA guaranteed loans: farm ownership loans; operating loans; and operating line of credit loans. A borrower can have one type of loan or a combination of all three types of loans.
Farm ownership loans can be used to purchase farm land, construct buildings and facilities, promote soil and water conservation practices such as manure storage, and to refinance debts to restructure the farm business. The term of the loan can be up to 40 years. Generally most lenders make 15- or 20-year loans.
In the case of farm ownership loans, the borrower must be the owner and operator of the farm real estate after the loan is closed.
Operating loans can be used to purchase farm equipment, livestock, fixtures, operating expenses, and to refinance operating type debts. The term of the loan can be up to seven years and will vary with what the loan funds are used for.
For example, if the loan funds are used for annual operating expenses then the loan can have a term of up to 18 months. If the loan funds are used for farm equipment the term can be up to seven years.
Operating line of credit loans can only be used for annual operating expenses. The loan has a term of five years but must be paid down to $1 each year.
The lender and FSA then review the projection for the next year and determine if funds can be advanced for the next year. This way the borrower is only charged one closing fee and one guaranteed fee.
The lender must meet certain eligibility requirements and the borrower must also meet eligibility requirements.
The basic eligibility requirements are that the borrower is a U.S. citizen, has an acceptable credit history, is unable to obtain the loan without an FSA guarantee, and is the owner and/or operator of a family farm after the loan is closed.
Guaranteed loans must be adequately secured. Borrowers must show the ability to repay the loan based on the history of their farm operation.
The FSA guaranteed loan program can also benefit the lender in that they can increase their lending capabilities and assist borrowers who have suffered a disaster or want to expand their farm operation.
Additional information is available by contacting the local FSA office or at www.fsa.usda.gov.
That’s all for now,
FSA Andy
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