Farm Service Agency Farm Loan Program Teresa and Jessi to introduce ourselves

We want to hear from you Farmers Non-farmers What kind of operation do you have or hope to have? Do you have an interest or need for a farm loan? What are you hoping to get out of this presentation? Non-farmers What is your role in working with farmers? Do you provide assistance and resources to farmers? Teresa UNITED STATES DEPARTMENT OF AGRICULTURE

Farm Service Agency Farm Programs Farm Loan Teresa DAIRY PROGRAM (MILC) PRICE SUPPORT (ARC/PLC ) CONSERVATION (CRP) DISASTER (NAP, LIP, TAP) OTHER PROGRAMS Direct Loans Farm Ownership Farm Operating Microloans Youth Loans Guaranteed Loans Farm Ownership Farm Operating EZ Guarantee

FSA Farm Loan Program Teresa

What are FSA Farm Loans? Loans funded by the U.S. Government Interest rate is typically lower than conventional loans / longer repayment terms No down payment requirements More lenient on repayment capacity More tolerable of high debt to asset ratio Loans must be fully secured Jessi

Who We help Beginning Farmers Underserved Farmers (SDA) (Women and Minorities) Farmers that don’t meet typical commercial lending standards Farmers who have commercial credit but have hit hard times an now require a safety net Value-added farming operations Organic and specialty farmers Multi-generational family farms Modernizing and expanding farmers Jessi UNITED STATES DEPARTMENT OF AGRICULTURE

Non-eligible enterprise Produces exotic animals, birds, or aquatic organisms or their products which may be agricultural in nature, but are not normally associated with agricultural production, e.g. there is no established or stable market for them or production is speculative in nature. Produces non-farm animals, birds, or aquatic organisms ordinarily used for pets, companionship, or pleasure and not typically associated with human consumption, fiber, or draft use. Markets non-farm goods or provides services which might be agriculturally related, but are not produced by the farming operation. Processes or markets farm products when the majority of the commodities processed or marketed are not produced by the farming operation. Jessi UNITED STATES DEPARTMENT OF AGRICULTURE

Farm Loan Program Direct Loan Types Farm Operating Loans Term Annual Farm Ownership Loans Microloans Emergency Loans Youth Loans Teresa

Farm Operating Loans $300,000 Maximum Loan Amount Term Loans Up to 7 year loan term Low fixed interest rate (Currently around 2.375% fixed) Annual Loans Up to 18 month repayment, typically 1 year term Low Fixed interest rate (Currently around 2.375% fixed) Loan Purposes_____________________________________________ Teresa Livestock Crop input expenses Refinancing Machinery Capital improvements Conservation purposes Equipment

Farm Ownership Loans $300,000 Maximum Loan Amount Up to 40 year loan term Low fixed interest rate (Currently around 3.625%) Loan Purposes__________________ Purchase real estate Make major capital improvements Conservation purposes Teresa

Farm Ownership Loans 5/45/50 Down Payment Farm Ownership (for Beginning Farmers and Underserved Applicants) Applicant provides a 5% down payment FSA will finance 45% Another lender will finance 50% FSA can be second mortgage Interest rate on the FSA portion is 1.5% interest (fixed rate) for 20 years Teresa

50/50 Joint Financing Loan Program Farm Ownership Loans 50/50 Joint Financing Loan Program FSA will finance no more than 50% Another lender will finance 50% FSA can be second mortgage Interest rate on the FSA portion is 2.00% less than the regular D-FO rate, but not less than 2.50%. Teresa

Microloans Operating Real Estate Simplified application process $50,000 Maximum Loan Amount Up to 7 year repayment Low, fixed interest rate (2.375%) Purposes: Operating Expenses Real Estate Simplified application process $50,000 Maximum Loan Amount Up to 30 year repayment Low, fixed interest rate (3.625%) Purpose: Purchasing Real Estate, making real estate improvements Jessi

Targeted Loan Funds Beginning Farmer Applicant has farmed for less than 10 years Applicant will be the operator of farm Applicant does not own real estate which exceeds 30% of average farm size in county: Vernon – 46.5 ACRES (AVG FARM SIZE IS 155 AC) La Crosse – 63.6 ACRES (AVG FARM SIZE IS 212 AC) Crawford – 58.8 ACRES (AVG FARM SIZE IS 196 AC) Jessi

Targeted Loan Funds Underserved Women, African American, American Indians, Alaskan Natives, Hispanics, Asians, and Pacific Islanders Loan dollars are directly targeted toward these applicant groups Jessi

General Eligibility Requirements Good Credit History, demonstrated by debt repayment No controlled substance violations Must be a U.S. citizen or non-citizen national, or a qualified alien Applicant has never received debt forgiveness Applicant must be unable to obtain credit elsewhere No delinquent federal debt. No unpaid judgments No federal crop insurance violations Applicant must have sufficient managerial ability Applicant must be the owner/operator of a family farm For farm ownership loans, applicant must have participated in business operations of the farm for at least 3 years of the 10 prior Teresa

FSA Application Packet 3 years Financial History 3 years Production History Authorization to Release Information Creditor List Property Owned and Leased Verification of Income Verification of Debts and Assets Current Balance Sheet Projected Income and Expenses Description of farm training and experience Copy of last three years income taxes Copy of all signed agreements Credit report fee Entity papers Teresa

Online Resources Farm Service Agency Homepage www.fsa.usda.gov Farm Loan Homepage http://www.fsa.usda.gov/programs-and- services/farm-loan-programs/index Farm Loan Application Forms http://www.fsa.usda.gov/programs-and- services/farm-loan-programs/farm-loan-application- forms/index Teresa

Farm Service Agency Farm Programs Farm Loan Jessi DAIRY PROGRAM (MILC) PRICE SUPPORT (ARC/PLC ) CONSERVATION (CRP) DISASTER (NAP, LIP, TAP) OTHER PROGRAMS Direct Loans Farm Ownership Farm Operating Microloans Youth Loans Guaranteed Loans Farm Ownership Farm Operating EZ Guarantee

Guaranteed Loans Guarantee loans are bank loans that are “guaranteed” by the government If the loan was to fail and there was a loss, FSA would pay the lender up to 90% of the amount of the loss Provides a safety net for the bank Allows the lender to sell the loan on the secondary market which allows the lender to obtain a longer term fixed interest rate (typically a lower interest rate than the bank could have otherwise provided). The lender is, essentially, FSA’s customer. Jessi

Guaranteed Farm Ownership Loans Maximum Loan Amount: $1,399,000 maximum outstanding guaranteed loan balance (combined for operating and real estate) Purpose: Purchase farm real estate Major farm construction projects Refinancing Terms & Rates: Bank interest rates and loan terms Jessi

Guaranteed Farm Operating Loans Maximum Loan Amount: $1,399,000 maximum outstanding guaranteed loan balance (combined for operating and real estate) Purpose: Machinery, equipment, livestock, annual operating expenses Terms & Rates: Bank interest rates and loan terms. No longer than a 7 year note. Jessi

Guaranteed Farm Operating Loans Guarantee Operating Lines of Credit are available. Lines of Credit are not available through our direct operating loan program. Jessi

EZ Guarantee - *NEW* Streamlined application for smaller guarantee’s All inclusive application form Applicant cannot have more than any combination of FO and OL: $100,000 guaranteed principal outstanding with SEL, CLP, and PLP lenders $50,000 guaranteed principal outstanding with MLP lenders Same eligibility, loan purpose, security , rates and terms, guarantee percentage, guarantee fees, and environmental rules Jessi UNITED STATES DEPARTMENT OF AGRICULTURE

Guaranteed Loan Summary $300,000 D-FO to purchase real estate $300,000 D-OL for operating purposes $1,399,000 Guaranteed Loans for real estate and operating loan purposes. $1,699,000 is the total amount you can have outstanding with both direct and guarantee loans. Jessi

Loan Servicing Reschedule Re-amortize Deferral Conservation Contract Teresa

Beginning Farmer Down Payment Program Loan Scenario #1 Beginning Farmer Down Payment Program (5/45/50) Farm real estate purchase for $500,000 Applicant provides 5% down payment: $25,000 FSA provides 45% of purchase price: $225,000 Another lender provides 50%: $250,000 $500,000 Teresa

Beginning Farmer Down Payment Program Loan Scenario #1 Beginning Farmer Down Payment Program FSA’s portion of the financing ($225,000) will be a 20 year note at a rate of 1.5% Interest (fixed rate) $13,106 annually ************************************************* Participating lender can have a 1st mortgage. FSA will be 2nd mortgage. Teresa

Direct Farm Ownership- Participation Loan Scenario #2 Direct Farm Ownership- Participation (50/50) Farm real estate purchase for $500,000 FSA provides 50% of purchase price: $250,000 Another lender provides 50%: $250,000 $500,000 Jessi

Direct Farm Ownership-Participation Loan Scenario #2 Direct Farm Ownership-Participation FSA’s portion of the financing ($250,000) will be 2% less than the normal D-FO rate, but not less than 2.50%. $11,945 annual installment (2.5% interest, 30 year note) ************************************************* Participating lender can have a 1st mortgage. FSA will be 2nd mortgage. Jessi

Loan Scenario Comparison #1: Down Payment #2: 50/50 Program FSA Loan Term 20 years Up to 40 years (typically 20-30 years) Interest Rate 4% less than our normal rate, but no less an 1.5% 2% less than our normal rate, but no less than 2.5% Security Position 2nd mortgage behind participating lender Down Payment 5% required Not required Jessi

Total Interest Paid to FSA Loan Scenario Payment Comparison You will save $71,226.50 in interest paid to FSA over the life of the loan by utilizing the beginning farmer down payment program. FSA Annual Payment FSA Loan Term Total Interest Paid to FSA #1: Down Payment $13,106.00 20 $37,105.81 #2: 50/50 Program $11,945.00 30 $108,332.31 DIFFERENCE $71,226.50 Jessi

Typical Loan Requirements: Loan Scenario #3 Loan Purpose Purchase 50 cows @ $1900 per head Loan Amount $95,000 Term 7 year note Interest Rate 2.375% Monthly Payment $1,241 ($621 per milk check) Typical Loan Requirements: FSA to have a first lien on all farm personal property (machinery, equipment, livestock, feed etc.) Payments will be monthly by dairy assignment FSA must be listed as a loss payee on the insurance policy. FSA may take a best obtainable mortgage on any real estate owned by the applicant. Other requirements as determined by the loan official. Teresa

Typical Loan Requirements Loan Scenario #4 Loan Purpose Crop Input Expenses Loan Amount $250,000 Term 1 year note Interest Rate 2.375% Annual Payment $255,938.00 Typical Loan Requirements FSA to have a first lien on crops and plants produced (purchase money security interest) FSA to have a blanket lien on all farm personal property. FSA must be listed as a loss payee on the insurance policy. Crop Insurance is required. Assignment of Indemnity form will be signed. FSA may take a best obtainable mortgage on any real estate owned by the applicant. All proceeds from the sale of the crop must be applied to the FSA loan. Typically, no money is released for other bills until the FSA loan is paid in full. NOTE: the annual loan is NOT revolving. FSA does not have a revolving option! Teresa

Summary FSA is an agency within the United States Department of Agriculture and operates a federally funded loan program. FSA makes operating and real estate loans. FSA offers a Guarantee Loan Program to conventional lenders. Loans are for farm purposes only. No hobby farming. Maximum loan amount for direct loans is $300,000. Microloans are available for loans of $50,000 for less. Contact your local Farm Service Agency for more information. Jessi

Questions Jessi and Teresa to answer questions

Now it’s your turn! Our applicant A young couple with a CSA veggie farm that is renting 15 acres of cropland. They rotate veggies, cover crops, and hope to expand into more pork production. They are asking for a $300,000 loan to purchase a 100 acre farm with a home, so they no longer need to rent. Let’s review their historical financial records and their projection and walk through some scenarios. FORMS 2002 – Three year financial history 2003 – Three year production history 2038 – Projected income and expense for 2017 Teresa UNITED STATES DEPARTMENT OF AGRICULTURE

Is their projected income supported by their historical records? Take a look at the income in the three year financial history and compare to what they are projecting they will do in 2017. Is there a pattern of growth or are there any major jumps? Take a look at the three year production history and compare to projected production in 2017. Discussion Jessi Growth in CSA shares is consistent each year as an increase by 25% Production for CSA shares is consistent at 10 shares/acre all four years Price/share is consistent. CSA information is fine. Hogs have a major jump in growth from selling 4 consistently to selling 35. They are using premium price for hogs and so this projection would need to be backed up by some proof of sales or we would need to use market prices. Current market price for hogs is $0.65/lb. We can use their historical sales of selling 4 at their price = $1600 and the remaining 31 would be calculated at $0.65/lb = $4,030 for a total of $5,630 for hog sales Their total income needs to be adjusted down by $8,370. UNITED STATES DEPARTMENT OF AGRICULTURE

Are their projected expenses supported by their historical records? Take a look at their expenses in the three year financial history and compare those expenses to the projected expenses. Do these seem reasonable? Discussion Teresa Feed for hogs Historically, they have had about $400 expense for 4 sold hogs, so approximately $100/head….assuming the death loss was early. Projection - $2000 for 35 sold hogs = $57/hog. The projected expense should be adjusted to $3500 Add $1500 to the expenses Freight and trucking and gas/fuel/oil is the same as 2016 without growth, but applicants explained that they are not adding any CSA stops, just increasing numbers at the stops. Rent – Land animals This is gone in the projection, and real estate taxes are accounted for the purchase price….so we are good here. All other expenses seem to allow for reasonable growth. Owner withdrawal – Stays consistently at $25K each year. NOI was not high enough in the first two years and so was supplemented by non-farm income. UNITED STATES DEPARTMENT OF AGRICULTURE

Do they have enough money to make their loan payment? The $300,000 loan at 3.65% interest over 30 years = an annual payment of $16,568 Assume we adjusted the income down by - $8,370 Assume we increased expenses by $1,500 Jessi Total income = $80,630 Total expenses =46,675 owner withdrawal = 25,000 = $8,955 (Not enough to cover their $16,568 payment) If their original budget had been accurate, it would have maybe worked, however we take additional things into consideration: Do they have a cushion for unexpected capital expenditures? We usually include around $2000-$5,000. This is also where we would also look at any other loan payments and liabilities the applicant has and add that in. UNITED STATES DEPARTMENT OF AGRICULTURE

Options for them Maybe look for a smaller farm Maybe wait a few years to document increased hog sales Maybe get a non-farm job to supplement Maybe save up for a down payment Teresa UNITED STATES DEPARTMENT OF AGRICULTURE

Other scenarios? Does anyone have an idea or scenario that they want to share? We can discuss the options UNITED STATES DEPARTMENT OF AGRICULTURE