As a young producer, Cole Hightower of Caldwell, Texas, couldn’t get the financing arrangements he needed to take his stocker operation to the next level. For help, he and his loan officer turned to the USDA Farm Service Agency’s (FSA’s) guaranteed operating loan program.
“After college, I worked a year for the FSA, so I was familiar with the program,” says Hightower, now 35. “I also worked for two cattle order-buying businesses in the Caldwell area. I really liked the cattle business and decided that’s what I wanted to do.”
Tim Knesek, Capital Farm Credit’s senior vice president and branch manager in La Grange, Texas, knew Hightower would be a good fit for an FSA guaranteed loan.
“We use guarantees primarily to bring young people into the ag business,” Knesek says. “We’ve been successful in using guaranteed loans to finance broiler growing facilities, cattle stocker operations and row crop production. One of the primary barriers for young producers is limited equity needed in starting up or expanding their operations. That’s where FSA can help us out.”
More FSA Loans
In addition to considering guaranteed loans, borrowers planning to start, expand or buy their own ag operation may want to discuss other FSA loan programs with their lender:
Direct farm ownership and operating loans may be funded directly through FSA. Maximum loan amounts are $300,000. Borrowers work directly with FSA lending staff.
- The Direct Farm Ownership Joint Financing Loan Program provides borrowers up to $300,000 from the FSA, with the remaining 50 percent of the loan amount provided by a lender.
- The Direct Farm Ownership Down Payment Loan Program provides applicants with the opportunity to make at least a 5 percent cash down payment of the purchase price, while FSA provides 45 percent (up to a maximum of $300,000) and a lender provides the remaining 50 percent. This program is available only for beginning farmers and ranchers.
The Microloan Operating and Ownership Loan Program provides up to $50,000 to small and niche farmers wanting to start or expand an agricultural operation. This option’s shortened application process requires less time and paperwork to complete.
The EZ Guarantee Loan Program is a streamlined version of FSA’s guaranteed ownership and operating loans. The maximum loan amount is $100,000.
For more information, go to https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/index.
How FSA Loans Work
Every fiscal year, the USDA allocates money to fund FSA loans as a way to boost American agriculture. Each state receives an amount that’s largely determined by the number of its resident farmers. In fiscal year 2017, the FSA obligated a total of $372.3 million in direct and guaranteed loan funds to beginning and socially disadvantaged farmers and ranchers in these five states where Landscapes readers live: Alabama, $52.1 million; Louisiana, $77.9 million; Mississippi, $65.9 million; New Mexico, $28.5 million; and Texas, $147.9 million.
“We take great pride in offering an extensive portfolio of loan programs to meet the needs of all eligible borrowers,” says Gary Six, executive director of the FSA in Texas. “And while FSA is committed to serving all farmers and ranchers, our agency also places a lending focus on the specific credit needs of minority, women, beginning, and military veteran farmers and ranchers.”
Borrowers may apply for a direct loan with FSA or partner with a lender to acquire an FSA guaranteed loan. Under an FSA guaranteed loan, the lender makes and services the loan, and the FSA guarantees a loss of up to 95 percent of the principal and interest. If a borrower defaults, FSA reimburses the lender.
As a beginning rancher, Hightower used an FSA guaranteed operating loan to purchase his first cattle in 2014. Two years later, he obtained an FSA guaranteed farm ownership loan to purchase 25 acres that came with a barndominium and cattle pens.
“FSA guarantees allow us as lenders to make a higher advance rate of funds to borrowers who have limited down payments,” Knesek explains. “Knowing that most of a potential loss is backed by the FSA allows us to take on this collateral risk when all other credit factors are in line with our lending standards.”
The process is mostly seamless to the borrower, because we work well with the FSA staff at the county and state levels on behalf of the producer.
Ricky McGraw, AgTexas Farm Credit
To qualify for an FSA guaranteed farm ownership or operating loan up to $1.429 million, a borrower must:
- Be a U.S. citizen or legal resident
- Be the owner/operator of a family-sized farm
- Have a good credit history
- Be unable to obtain credit elsewhere with reasonable terms
- Have the legal means to obtain the loan
- Not be delinquent on any federal debt or have defaulted on any FSA loans
Mississippi Development Authority (MDA)
The Agribusiness Enterprise Loan Program partners with lenders to help finance agricultural producers. The MDA provides interest-free loans for up to 20 percent — or $200,000, whichever is less — of the cost to buy or renovate buildings or equipment. Retrofitting projects may receive loans up to 30 percent of costs, or $200,000, whichever is less. Loans are for a maximum of 15 years.
Texas Agricultural Finance Authority (TAFA)
The TAFA Agricultural Loan Guarantee Program offers loan guarantees up to $500,000, or 80 percent of the loan amount, whichever is less. A second option guarantees $250,000, or 90 percent, whichever is less. Borrowers partner with a lender that handles the loan. Funds may be used to purchase land or equipment, or cover operating or leasing costs.
TAFA Young Farmer Grants award up to $20,000 in matching grants to applicants, aged 18 to 46 years, who plan to start or expand an agricultural business. Grant applications are accepted twice a year (spring and fall). In fiscal year 2017, the program awarded 20 matching grants that funded a variety of operations, including viticulture, dairy goats and hydroponics.
Small Business Administration (SBA)
On the federal level, the SBA offers direct loans as well as guaranteed loans to agricultural producers.
In order to get a guaranteed loan, a borrower must put together a detailed business plan for the year ahead.
“These are high-risk loans to borrowers who have limited to no history as producers,” Knesek explains.
Not Just for Beginners
Sometimes even seasoned ag producers use FSA guaranteed loans.
“During down cycles when profits are low, we have borrowers who use them to reduce or defer their debt service requirements and/or reorganize their balance sheet,” says Ricky McGraw, AgTexas Farm Credit senior vice president in Hillsboro.
“FSA loan programs are great tools for us,” McGraw adds. “The process is mostly seamless to the borrower because we work well with the FSA staff at the county and state levels on behalf of the producer.”
These days, Hightower runs between 350 and 600 head of stocker cattle on 600 leased acres near Caldwell, where he and his wife, Melissa, a commercial pilot, live in their barndominium.
“Without the lending help I got, it would have taken me a lot longer to get where I am now,” he says. “I probably would have had to get a second job just to make ends meet. But because of FSA and Capital Farm Credit, I didn’t have to. Best of all, I’m my own boss.”
– Sheryl Smith Rodgers