FAQ: What types of loans are available from the Farm Service Agency?
Answer: Providing the answer to this question and those following is Brian Gossling, farm loan program director for USDA's Farm Service Agency in Iowa. He is located at the state FSA office in Des Moines.
USDA's Farm Service Agency has several loan programs to assist eligible farmers. Farm Operating loans are available to finance annual needs such as crop inputs, feed and feeder livestock. FSA also has long-term operating loans for financing purchases of machinery or breeding livestock, and to refinance debt. FSA also has Farm Ownership loans to finance the purchase of real estate, as well as for improvements to real estate. There are also special loan programs designed to assist operations in recovering from natural disasters. FSA has programs available to assist with most farm financing needs.
Question: I have heard FSA referred to as "the lender of last resort." Is this an accurate representation of FSA's loan programs?
Answer: Over the last few years we have worked hard to do a better job of telling our story. The agency has evolved and "the lender of first opportunity" is a much better description of our purpose. That first opportunity could be helping a young family rent or buy a farm.
Congress established targets on much of our funding to channel loan funds to beginning farmers and other groups that are traditionally underrepresented in agriculture. As a result, we have had tremendous success in expanding our beginning farmer portfolio. Iowa's beginning farmer portfolio has increased by 53% over the last three years. That first opportunity could also include giving a more established operation an opportunity to continue farming after a crop disaster. We still offer a variety of programs to assist non-beginning farmers, but our role now is more as a partner in the lending community.
FSA works with banks and other stakeholders to meet the everyday needs of farmers. While we still do not compete with banks and other lenders for loans, the intense capital needs in agriculture have added value to FSA's loan program as a tool to mitigate risk and increase profitability. As a result, farming operations that have not used FSA's loan programs in the past are now active participants.
Question: Is FSA loaning money to buy farms, or just making farm operating loans?
Answer: There has been a lot of interest in loans to buy farms. FSA helped over 600 farmers in Iowa buy land in 2008 and 2009. The 2008 Farm Bill included a couple significant improvements to the Farm Ownership program.
First, it increased FSA's lending limit for Farm Ownership loans to $300,000. This was the first increase in the lending limit in over 20 years. Second, the interest rate for the beginning farmer down payment loan program was reduced. We are currently funding down payment loans through this program at 1.5%, which really helps reduce the cash flow demands when purchasing real estate. These changes, plus profit opportunities and historically low interest rates for all of programs, have led to an increase in demand.
Question: As agriculture has changed and operations have gotten larger, FSA's loan limits have lagged behind. Does FSA have programs to assist operations with higher credit needs?
Answer: FSA's loan programs can generally be categorized into direct or guaranteed loan programs. The traditional programs are called direct loan programs as the operator is borrowing directly from the government. The direct program has lower lending limits, typically around $300,000 for each loan type.
In contrast, with the guaranteed loan program the operator is borrowing from a conventional lender. FSA's role is to provide a guarantee on the loan for the benefit of the producer and the lender. One significant benefit of the guaranteed loan program is a higher loan limit, currently $1,112,000. The guaranteed loan program is usually a better fit for operations with higher capital needs.
If you have specific questions or need details regarding USDA farm programs, contact your local USDA Farm Service Agency office. You can also get news and information about DCP, ACRE and other USDA programs at www.fsa.usda.gov.
Two Iowa State University Extension Web sites have farm program information and analysis. They are ISU's Ag Decision Maker site at www.extension.iastate.edu/agdm and ISU Extension Specialist Steve Johnson's site at www.extension.iastate.edu/polk/farmmanagement.htm.
And be sure to read the regular column "Frequently Asked Questions about the Farm Program" that appears in each issue of Wallaces Farmer magazine and at www.WallacesFarmer.com