FSA makes direct and guaranteed farm ownership (FO) and operating loans (OL) to family-size farmers and ranchers who cannot obtain commercial credit from a bank, Farm Credit System institution or other lender.
Farm Ownership
Guaranteed Farm Ownership (FO) Loans may be made to purchase farmland, construct or repair buildings and other fixtures, develop farmland to promote soil and water conservation or to refinance debt.
Guaranteed Operating Loans
Guaranteed Operating Loans (OL) may be used to purchase livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance and other operating expenses. Operating Loans can also be used to pay for minor improvements to buildings, costs associated with land and water development, family living expenses and to refinance debts under certain conditions.
Borrower Eligibility
To qualify for an FSA Guarantee, a loan applicant must:
• Be a citizen of the United States (or legal resident alien)
• Have an acceptable credit history as determined by the lender.
• Have the legal capacity to incur the obligations of the loan.
• Be unable to obtain a loan without a guarantee.
• Not have caused FSA a loss by receiving debt forgiveness on more than 3 occasions on or prior to April 4, 1996; or any occasion after April 4, 1996.
• Be the owner or tenant operator of a family farm after the loan is closed. For an OL, the producer must be the operator of a family farm after the loan is closed. For an FO Loan, the producer needs to also own the farm.
• Not be delinquent on any Federal debt.
Loan Terms and Interest Rates
Repayment terms vary according to the type of loan made, the collateral securing the loan, and the producer’s ability to repay. OLs are normally repaid within 7 years and FO loans cannot exceed 40 years.
The Guaranteed loan interest rate and payment terms are negotiated between the lender and the borrower. Interest rates on these loans may not exceed the rate charged the lender’s average farm customer. In addition, under the Interest Assistance Program, FSA will subsidize 4 percent of the interest rate on loans to qualifying borrowers.
Security
Each loan must be adequately secured. Collateral for OLs consists of a first lien on crops to be produced and on livestock and equipment purchased or refinanced with loan funds. A lien may be taken on certain other personal property and real estate property, and an assignment usually will be taken on income such as that from a dairy enterprise. Collateral for FO loans consists of real estate only or a combination of real estate and personal property.
Percent of Guarantee
For most loans, the maximum guarantee is 90 percent. The guarantee percentage will be determined by FSA based on the risk involved in the loan.
Guarantee Fees
For most loans, FSA charges a guarantee fee of 1.5 percent of the guaranteed portion of the loan. This fee may be passed on to the borrower.
Willetta K. Everett is a Farm Loan Officer for the Baxter County Farm Service Agency.
