Ag Policy Blog

USDA is making changes to Farm Service Agency farm loan programs that should help producers secure larger loans or defer payments when hit by disasters.

USDA this week will post a final rule in the Federal Register, the "Enhancing Program Access and Delivery for Farm Loans" rule that will go into effect for FSA loans after Sept. 25, 2024. USDA stated the changes are intended to increase opportunities and help farmers and ranchers to be financially viable.

FSA Administrator Zach Ducheneaux has talked about ways to improve FSA's lending programs since he took over the position over three years ago.

"So, we've been talking about farm loan reform, credit reform for at least the last 3 1/2 years I have been in part of the administration. But this goes back to work over the last 30 to 40 years of farm advocates across the country."

Among the biggest changes, Ducheneaux said, is FSA will change the rules for security or collateral needed for loans. FSA loan officers have typically required 150% security as a requirement for loan approval. Ducheneaux said a data analysis shows that not more than 125% security or collateral is needed for FSA loans. The potential here is that it could free up more collateral to use for other loans for equipment, for instance.

"That's a game changer for a lot of our producers who really may want to have FSA as a lender, but also want to explore other opportunities," Ducheneaux said.

This change in security requirements also will reduce the frequency in which borrowers would have to put up their homes as collateral for farm loans.

Along with adjusting those collateral requirements, Ducheneaux said FSA will allow producers that are "very well securitized" after three to have their loan agreements reevaluated and lowered down to 125% of the remaining loan value.

"That will instantly free up assets and won't require restructuring," he said. "It will just require them to go through the process to reevaluate their assets and their liabilities. Then we can release some of their assets so they can transact business with the rest of the world."

Ducheneaux said farmers can then go to their local banks, credit unions or Farm Credit lenders with assets to pledge without getting a subordination or asking that lender to be in the second position on credit.

"They're going to have a lot better access to more capital tools than just ours," he said.

Other changes include creating a "low-interest installment set-aside program" that will apply for financially distressed borrowers. Those producers will be able to defer a loan payment to the end of a loan period at a reduce interest rate.

None of the changes rolled out by FSA increase loan limits. Those are statutory and tied to the passage of a farm bill.

USDA said, "For the over 26,000 producers who submit a direct loan application annually, FSA has made several impactful improvements including:

- "The Loan Assistance Tool that provides customers with an interactive online, step-by-step guide to identifying the direct loan products that may be a fit for their business needs and to understanding the application process.

- "The Online Loan Application, an interactive, guided application that is paperless and provides helpful features including an electronic signature option, the ability to attach supporting documents such as tax returns, complete a balance sheet, and build a farm operating plan.

- An online direct loan repayment feature that relieves borrowers from the necessity of calling, mailing, or visiting a local USDA Service Center to pay a loan installment.

- "A simplified direct loan paper application, reduced from 29 pages to 13 pages."

To look over these loan changes, USDA will encourage producers to visit their local service centers. www.fsa.usda.gov

Chris Clayton can be reached at Chris.Clayton@dtn.com

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