Government programs working with local, preferred lenders can help producers get on their feet
The Farm Service Agency (FSA) makes direct and guaranteed farm ownership and operating loans to family-size farmers and ranchers who cannot obtain commercial credit through conventional bank loans, or another lender. FSA loans can be used to purchase land, livestock, equipment, feed, seed and supplies.
Loans can also be used to construct buildings or make farm improvements.
You apply for the FSA guaranteed farm loan through your lender of choice. The lender must be an approved FSA lender. There are different levels of FSA lenders, the level a lender is approved for can affect the speed with which your loan gets approved. You want a Preferred FSA lender as they have the most pull with the FSA and have the most experience with their loans.
“In our experience, dealing with an FSA Preferred Lender can expedite the process by weeks or even months,” John House, president of the Stone Bank Agri Lending Division in Mountain View, Ark., said.
You can secure financing of up to $1,399,000 for your farm. You apply for the loan with the lender, just like you would for any other loan. After you complete your application and send in your income documentation, the lender underwrites the loan. Once the bank is satisfied with your documentation and approves the loan, they send it on to the USDA for final approval.
This is where the preferred lender comes in handy as their loans are the first to be processed by the USDA/FSA.
The requirements to qualify for the FSA guaranteed loan program are fairly simple:
• You must be a United States citizen
• You must prove that you have viable credit history with a decent score
• If you don’t have a credit history, you must have at least three non-traditional trade lines
• You must prove that you cannot secure financing from any other program
• You must not have defaulted on any FSA loans in the past
• You must own and operate the farm
Your farm will also have to meet a few qualifications in order to secure the loan:
• You must provide a majority of the farm’s operations
• You must make a majority of the operational decisions for the farm
If you’re planning to get any loan from a bank, you’ll likely need to put up assets as collateral, make a down payment, or do a combination of both. When applying for an FSA Guaranteed loan, FSA requires that all loans are at least 100 percent collateralized. Collateral can be cash in banks, marketable securities, real estate or even equity in your home or other commercial property.
Before you go into any bank to apply for a loan, assess your current debts to know how much you owe to whom. This can include debts such as credit cards, medical or hospital debts, back taxes, and contracts or agreements with other individuals.
“The process can be a bit intimidating, so we always urge our customers to do their homework,” House said. “A good place to start would be to visit the USDA website. They have a lot of helpful information available. Of course, we certainly recommend having an experienced lender guide you through the process.”
Kirby Williams is Stone Bank EVP, Marketing.