FSA Guaranteed Loans

Citizens State Bank of Loyal is a Preferred Lender for the Farm Service Agency.  The Preferred Lender Program, or PLP, is the top status that a lender can hold in the FSA Guaranteed Loan Program.  PLP was developed to reward experienced lenders by (1) streamlining and adding flexibility to the loan applications and servicing requirements; (2) expediting loan approval and other FSA decisions; and (3) allowing lenders to originate and service guaranteed loans the way they do other loans in their portfolio.  Lenders with “Preferred” status have broad authority in making and servicing FSA Guaranteed Loans and can utilize their own underwriting and servicing policies. 

FSA Guaranteed Loans provide lenders with a guarantee of up to 90% of the loss of principal and interest on a loan.  Farmers apply to an agricultural lender, which then arranges for the guarantee.  The FSA guarantee permits lenders to make agricultural credit available to farmers who do not meet the lender’s normal underwriting criteria.

FSA guarantees loans for both Farm Ownership and Operating purposes.  As is the case with FSA Direct Loans, a percentage of Guaranteed Loan funds is targeted to beginning farmers and ranchers and minority applicants. 

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 (OL) may be used to purchase items needed for a successful farm operation.  These items include livestock, farm equipment, feed, seed, fuel, farm chemicals, repairs, insurance, and other operating expenses.  Also, Operating Loans can 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 that FSA can guarantee OLs and FO loans for is $949,000.00.  This maximum amount is adjusted annually based on inflation.

Borrower Eligibility for an FSA Guarantee includes the following:

• Be a citizen of the United States (or legal resident alien), which includes Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories.
• Have the legal capacity to incur the obligations of the loan.
• Be unable to obtain credit without a guarantee.
• Have an acceptable credit history as determined by the lender.
• 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.

In addition to meeting the eligibility criteria, the loan applicant must have a satisfactory credit history, demonstrate repayment ability, and provide sufficient security for the loan.

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.

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.

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 chattel 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 chattels.  FSA staff determine whether the collateral proposed by the lender is adequate.

For most loans, FSA charges a guarantee fee of 1 percent of the guaranteed portion of the loan. 

For more information on Guaranteed FSA Loans, call us or visit the website at www.fsa.usda.gov.