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FSA Lending Gets A Boost

Katie Micik Dehlinger
By  Katie Dehlinger , Farm Business Editor
Image by Nick Scalise

Another farm bill is on the books, giving the nation’s farmers, ranchers and agribusinesses a clear idea of the rules governing the industry as they begin another year.

Crop insurance emerged relatively unscathed, and changes to commodity safety net programs will hopefully provide better protection in the years ahead.

While most focused on the Agricultural Improvement Act of 2018’s commodity title, ag bankers found a lot to cheer in the credit title, particularly higher loan guarantees from the Farm Services Agency. The bill increases the guarantee amount to $1.75 million from the previous $1.399 million. It also doubles the loan limit for direct farm ownership, or real estate, loans to $600,000 and increases the limit on direct farm operating loans by $100,000 to $400,000.

With an FSA loan guarantee, the lender closes the loan and advances the funds to the borrower. If the borrower defaults, FSA reimburses the bank. A direct loan is financed by the FSA, which also makes and services the loan.

Ed Elfmann, senior vice president for ag and rural banking policy at the American Bankers Association, says the change will give bankers more flexibility when working with customers. It’s not uncommon for bankers to use a combination of these products to meet borrowers’ needs.


“The more flexibility you can have, the better, especially as these operations grow larger in size,” he says. “We have to remember that ag is not--farms are not--small, little family operations like they used to be. They’re complex. They’re multiple entities. They’re growing in size and scope.”

As farms have grown, so have their borrowing needs. And, in these tight financial times, the financial backing of the U.S. Department of Agriculture gives banks more confidence to continue lending despite mounting concerns about cash-flow.

Elfmann says he thinks more farmers will take advantage of the higher loan guarantees during the next year or two to help them “roll through some tougher times.”

He emphasizes that there’s always something that could happen to move commodity prices higher, such as drought in Brazil or Argentina.

“But, the way it’s projecting out right now, things like loan guarantees are going to be important, because it helps the lender help somebody keep the operating line the same size it has been and not have to drive up the interest rate too much.”

The new, higher limits will help bankers and farmers navigate this period of tight incomes, but they’re still not quite high enough to serve all sectors of agriculture well. Elfmann says poultry is a prime example. If a farmer wants to build eight barns in the corner of a field, he may need a loan that’s $2.5 to $3 million. He’s also seen estimates that put the cost of starting a row-crop farm from scratch upwards of $4 million.

In those cases, the new $1.75-million limit on FSA loan guarantees isn’t enough. “It’s still not where it needs to be to help everybody we’d like to help. But, at least it’s a step in the right direction,” Elfmann says.

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