Becoming an FSA Guaranteed Lender

An Overview of the USDA Farm Service Agency

Farm Loan Programs

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Farm Service Agency

Farm Loan Programs http://fsa.usda.gov/FSA/

1400 Independence Ave, SWWashington, DC202-720-3889

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Farm Service Agency

Farm Loan Programs

Chris Beyerhelm

Deputy Administrator for Farm Loan Programs

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Farm Loan Programs

Guaranteed Loan Making

Randi ShefferBranch Chief

Trent RogersSenior Loan Officer

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Farm Loan Programs

Guaranteed Loan Servicing

Jeff KingBranch Chief

Theresa NullSenior Loan Officer

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California FarmLinkCertified CDFI

Reggie KnoxExecutive Director

Santa Cruz, CA

CA FarmLink provides small loans to farmers for annual operating costs,

equipment and infrastructure.

Farm Service AgencyFarm Service AgencyFSA provides assistance to farmers through many programs:

 •Farm Programs:• Production, Emergencies & Compliance • Price Support • Conservation & Environmental Programs• Disaster Programs

•Farm Loan Programs:• Direct Loans• Guaranteed Loans

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Types of LoansTypes of Loans

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Direct Loans

• Applicant applies directly to one of the USDA-FSA Service Centers located across the country

• Loan limits may be made up to $300,000

Guaranteed Loans

• Applicant applies to an agricultural lender, who then applies to FSA for the guarantee

• Guaranteed Loan limits may be made up to $1,355,000 (adjusted annually)

Benefits of a Guaranteed Benefits of a Guaranteed LoanLoanProvides an “Insurance Policy” for production agricultural loans

◦FSA reimburses the lender up to 95% of the principal and interest lost when a borrower can not pay back the loan

◦Mitigates risk when lending to borrowers who do not meet commercial lender underwriting standards

◦Less risk means lower interests for your borrowers

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BenefitsBenefits

Turns a loan into a marketable security

◦Guaranteed portion of loan can be sold on the secondary market

◦Provides capital that can build portfolio

◦Provides source of capital through servicing fees

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BenefitsBenefits

Using guaranteed & direct farm ownership programs together

◦Downpayment Program (SDA/BF) 5% down payment provided by borrower Up to $300,000 financed by FSA directly Balance financed by lender

◦Participation If FSA provides ≤ 50%, special interest

rates apply

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BenefitsBenefitsGain experience underwriting

agricultural loans

◦FSA will help you through the underwriting process

◦FSA provides annual lender training

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PurposesPurposesFarm Ownership (FO) Direct & Guaranteed

Use of ProceedsPurchase farmConstruct buildings or other capital improvementsSoil and water conservationPay closing costRefinance debt incurred for FO purposes (Guaranteed only)Interest Rates-FeesDirect: varies, based on Government’s borrowing cost (currently 4%)Guaranteed: determined by lender1.5% Guaranteed FeeTermsup to 40 year

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PurposesPurposes

Farm Operating (OL)(LOC) Direct & Guaranteed

Use of Proceeds•Purchase livestock, machinery and equipment•Pay annual operating and/or family living expenses•Refinance operating debt•Pay closing cost•Payment of non-delinquent payments on term debts (OL/FO) Interest Rates-Fees•Direct: varies, based on Government’s borrowing cost (currently 2.25%)•Guaranteed: determined by lender•1.5% Guaranteed FeeTerms•up to 7 year

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Eligibility Requirements Eligibility Requirements Standard Eligible Lender (SEL)

SEL is basic level of participation in the FSA Guaranteed Loan ProgramLender must have experience in making and servicing agricultural loans (or work with an experienced packager)Lender must maintain an office near enough to the collateral’s location for proper servicing

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Becoming a SELBecoming a SELCDFI’s requesting SEL approval will need to provide:

•Cover letter requesting SEL status•Copy of year-end financial statement and agriculture performance history for past 2 years•Schedule of current sources of funding and funds available for agriculture lending•Current loan loss reserve

Requests are submitted to the National Office through the State Executive Director for the State where the CDFI is located.

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Application ProcessApplication Process

SELs submit the following to FSA:• Application form• Loan narrative• Balance sheet• Cash flow budget• Description of farmed land• Credit report• Environmental information (if needed)• Verification of income/debts• Financial/production history

FSA will:• Make determination, approve and obligate loan

request

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Guaranteed Loan Guaranteed Loan ServicingServicingGuaranteed against loss as long as:

Serviced according to standard Ag Lending practices and standards, and

The requirements of the lenders agreement and the guarantee are met.

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General ServicingGeneral ServicingLender Responsibilities:

Apply standard agricultural loan servicing principals to guaranteed loans:

Accounting for loan proceedsMonitoring collateral and tracking the sale

of collateralMaintain regular contact with the borrower

Servicing a guaranteed loan is no different than servicing a non-guaranteed loan.

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ReportingReporting

Guaranteed Loan Status reports as of March 31 and September 30 of each year.

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Servicing ToolsServicing Tools

FSA works with lenders to help assure that every borrower has the opportunity to be a successful farmer or rancher. The guarantee provides servicing flexibility that results in favorable terms for:

ReschedulingDeferral Debt Writedown

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Other Servicing ToolsOther Servicing Tools

Servicing tools that are also available to assist borrowers with options to improve cash flow or help to ensure the success of the farming or ranching operation include:

SubordinationsPartial ReleasesInterest Rate Adjustments Debt Consolidation

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Default ServicingDefault Servicing

Loans are in default when 30 days past due on a payment or in violation of provisions of the loan documents.

Default status reports are required for delinquent loans every 60 days until the default is resolved or loss claim submitted.

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Loss ClaimsLoss Claims

Must be supported by documentation that lender has serviced the loan as required.

Example:Accounting for use of proceedsAccounting for all security

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FSA Website: http://fsa.usda.gov/FSA/Sign-up for FSA electronic notificationsDownload Fact Sheets for FSA ProgramsLocate FSA State and County Service Center Office (FSA staff and phone number)

CDFI’s can also contact:FSA State OfficeLocal USDA-FSA Service Center

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