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

2. 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

3. 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

4. FSA Farm Loan Program
Teresa

5. 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

6. 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

7. 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

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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

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

19. 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

20. 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

21. 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

22. 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

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

24. 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

25. 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

26. Loan Servicing Reschedule Re-amortize Deferral Conservation Contract
Teresa

27. 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

28. 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

29. 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

30. 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

31. Loan Scenario Comparison #1: Down Payment #2: 50/50 Program
FSA Loan Term
20 years
Up to 40 years
(typically 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

32. Total Interest Paid to FSA
Loan Scenario
Payment Comparison
You will save $71, 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

33. Typical Loan Requirements:
Loan Scenario #3
Loan Purpose
Purchase 50 $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

34. 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

35. 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

36. Questions
Jessi and Teresa to answer questions

37. 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

38. 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

39. 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

40. 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

41. 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

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