By Tom Driscoll, Director of NFU Foundation and Conservation Policy
In Fiscal Year 2016, the Farm Service Agency (FSA) issued 29,602 direct loans to farmers and ranchers totaling $2.39 billion. Of those, almost 17,800 were allocated to beginning producers. The proportion of loans to beginning producers is high because in many cases, FSA is the only lender that can work with them. Additionally, beginning producers are granted competitive advantages in FSA’s application process. FSA, by offering critical loans and programs, plays an important role in the establishment of the next generation of farmers and ranchers.
However, FSA’s role as lender of first-opportunity loans means that beginning producers who have borrowed, or are considering borrowing, directly from FSA should be particularly careful with that relationship. Getting off on the wrong foot with FSA can encumber or block future credit opportunities, and the federal government receives significant deference in foreclosure or bankruptcy proceedings.
Currently, there are signs of growing financial stress in many parts of the farm sector, making this an important time to review ways to stay on good terms with FSA. Because an FSA loan gone awry can have severe consequences, current and prospective FSA borrowers should be familiar with loan servicing options designed to avoid foreclosure and liquidation. Even if you are not considering a FSA loan today, future market conditions or changes on your operation may cause you to consider one in the future.
Direct borrowers from FSA are, under certain circumstances, entitled to loan servicing. FSA is required to provide written notice of the availability of loan servicing to any direct borrower who is 90 days past due on a payment. Borrowers have 60 days to respond to such notice. However, FSA borrowers should always remember that they do not need to wait until their payment is past due to apply for loan servicing. If a borrower determines that they will not be able to make the next payment, or is unable to develop a feasible plan for staying current on payments through the present or next production cycle, they may request loan servicing.
Available servicing for delinquent and distressed borrowers include:
- Reamortization (recalculating the amount required for monthly payments)
- Interest rate reduction
- Deferral of interest/principal
- Offset for conservation easement
- Write-down (only available to delinquent borrowers)
If a borrower asks for loan servicing, is found eligible, and the available servicing would bring the loan current and allow farming or ranching to continue, FSA must provide that servicing.
FSA also guarantees loans made by other lenders to producers. Loan guarantees invoke different rules governing the relationship between borrowers, lenders, and FSA.
Have you borrowed, or considered borrowing, directly from FSA? Were you aware of the availability of FSA loan servicing, and would that affect your decision to borrow from FSA? Please share your thoughts in the comments below.
 “Feasible plan” means there is sufficient cash inflow to cover all outflow.
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