Guaranteed Loan Program
The Farm Service Agency (FSA) provides Guaranteed Farm Ownership and Operating Loans for farmers and ranchers to work with banks, credit unions or other lenders to make loans with an FSA guarantee against significant loss of principal or interest. A percentage of guaranteed ownership and operating loans are reserved for beginning farmers and ranchers and for socially disadvantaged farmers and ranchers.
Nebraska College of Technical Agriculture, Curtis, NE, has created a unique partnership with the Farm Service Agency where their participating students work to gain access to these credit programs upon graduation. Photo and information courtesy of NCTA Web site.
Creative Partnerships to Help Beginners Build Assets & Ownership
The Nebraska College of Technical Agriculture (NCTA) created the 100 Beef Cow Ownership Advantage program, a unique partnership that brings together the resources of NCTAs curriculum and the Farm Service Agency’s loan programs.
NCTA, in partnership with the USDA Farm Service Agency and others, develops courses and seminars for students, parents, employers, and land owners with the specific objective of formulating business plans that include a total farm or ranch transfer over a 30-year time period.
This unique program starts with NCTA's degree program in beef cattle management, which includes developing a business plan. This plan will, just prior to graduation, be presented to FSA for consideration for approval of a loan to the student for a cow herd. One hundred cows is an arbitrary number, but very feasible within the FSA financial guidelines.
The key to this program is to have the NCTA graduates return to rural Nebraska with a large enough asset that they will be a viable partner, not a “hired hand,” within an agricultural enterprise. The initial cow herd ownership will provide a catalyst and vision for both the graduate and parents or employers to set in place a long-range plan that will eventually provide the graduates and their families the opportunity to be profitable beef cattle entrepreneurs. And the Guaranteed Loan Program could work well for graduating students to work with a traditional lender that is looking for additional security on the loan.
How Does it Work?
Guaranteed Ownership Loans
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.
Maximum Loan Size
FSA can guarantee operating or farm ownership loans up to $1,112,000 (amount adjusted annually based on inflation).
To qualify for an FSA Guarantee, a loan applicant must:
- be a citizen of the United States (or legal resident alien), which includes Puerto Rico, the US Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories
- have a satisfactory credit history, demonstrate repayment ability, and provide sufficient security for the loan
- 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
- 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.
Entities (corporations, cooperatives, joint operations, partnerships, trusts, and limited liability companies) and their members/stockholders must meet these same eligibility requirements. The entity must also be authorized to operate a farm or ranch in the State where the land is located.
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. Operating loans are normally repaid within 7 years and farm ownership 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.
What security is required?
Each loan must be adequately secured. Collateral for operating loans 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 chattel and real estate property, and an assignment usually will be taken on income such as that from a dairy enterprise.
Collateral for farm ownership loans consists of real estate only or a combination of real estate and chattels. FSA staff determines whether the collateral proposed by the lender is adequate.
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. The lender may receive a 95 percent guarantee when:
- The purpose of the loan is to refinance direct FSA farm credit program debt. If only a portion of the loan is for this purpose, a weighted percentage of guarantee will be used.
- The loan is made to a beginning farmer to participate in the beginning farmer down payment loan program or a qualifying State beginning farmer program.
For most loans, FSA charges a guarantee fee of 1 percent of the guaranteed portion of the loan. This fee may be passed on to the borrower. The guarantee fee is waived for:
- Interest assistance loans
- Loans where more than 50% of the loan funds are used to pay off direct FSA loan debt
- Loans in conjunction with a Down Payment Farm Ownership Loan program for beginning farmers or a qualifying state beginning farmer program. This fee waiver does not extend to all beginning farmers.
Is this the lender’s loan or an FSA loan?
Guaranteed loans are the property and responsibility of the lender. The lender makes the loan and services it to conclusion. If successful, the borrower is able to repay the loan and no taxpayer money will be used except for administrative expenses. If a loan fails, and the lender suffers a loss, FSA will reimburse the lender with Federal funds according to the terms and conditions specified in the guarantee.
FSA loan programs provide folks the opportunity to become independent farmer and/or ranch business owners. Access to capital is one of the biggest barriers for beginners seeking to get started with a farming or ranching business. FSA loan programs can help close that gap.
The application process works like this:
- The producer and lender complete the guaranteed application and submit it to FSA (FSA will assist if needed.)
- FSA reviews the application for eligibility, repayment ability, security, and compliance with other regulations.
- FSA approves and obligates the loan.
- The lender receives a conditional commitment indicating funds have been set aside, and the loan may be closed.
- The lender closes the loan and advances funds to the producer.
- FSA issues the guarantee.
The Nebraska College of Technical Agriculture’s 100 Beef Cow Ownership Program helps beginners get started with assets. Learn more about the program here.
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