Making Connections with FSA

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Show Notes

Leah Peterson

 

Summary

In this episode, Johanna Rohrer interviews Amy Rowe, Farm Credit loan officer and Leah Petersen, Farm Loan Specialist with Maryland Farm Service Agency. This round table conversation focuses on connecting young, beginning,

and small (YBS) farmers with resources from the Farm Service Agency.Amy Rowe Together, we highlight how FSA and Farm Credit work together, the differences in direct and guaranteed loan programs, and tips for new farmers to consider as they are making their start in farming.

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Transcript

Johanna Rohrer:

Welcome to the Farm Credit AgVocates Podcast. I'm your host, Johanna Rohrer, Outreach and Educational Program Specialist at MidAtlantic Farm Credit. Joining me today are two great guests, Amy Rowe and Leah Peterson.

Amy Rowe is a familiar face from our Salisbury, Maryland branch. She is a farm kid at heart growing up on a large cattle operation in Alabama. Her family also had poultry houses, raising both broilers and broiler breeders. Currently Amy lives on a small farm in Somerset County, Maryland with her husband. She is passionate about helping young and beginning farmers to find success and works hard to stay connected with her local, young farmer community. Amy has been working in agricultural lending for over nine years.

Leah Peterson is Maryland FSA’s Farm Loan Specialist. She grew up on a small dairy and crop farm in central Minnesota. She's most familiar with Holsteins, but has a soft spot in her heart for Jerseys. She began with FSA 20 years ago in Minnesota and moved to Maryland 11 years ago with her husband and two children. She is passionate about helping farmers succeed, grow, and transition through developing solid business plans, managing debts, and budgeting while striving for the right solution for each operation.

Please help me welcome both Leah and Amy to the podcast.

Johanna Rohrer:

Let’s get started.

What does FSA stand for in agriculture and what is the mission?

FSA's Mission

Leah Peterson:

FSA strives to be both a partner and a resource in agriculture through risk management, finance, conservation, and disaster aid programs. Our mission is to equitably serve all farmers, ranchers and agricultural partners that we work with. We do this through effective and efficient delivery of these agricultural programs for all Americans.

Johanna:

As a new farmer, where should someone start if they're just getting to know FSA? We know that finding the right loans in the beginning of starting on a farm can be tricky. Can you share with us how your Farm Loan Discovery Tool works and where people find it?

Finding the Right Loans to Start Farming

Leah:

Depending on how people like to start, some might prefer to research basic information before they actually speak to someone to help generate questions of their own. They can do that online at fsa.usda.gov. They'll find a host of information about both farm programs and our farm loan programs. They can explore and determine programs for themselves, or write down questions they might have about the programs that they're interested in. They can then connect with an FSA employee to ask questions and discuss their operation or plans. The FSA employees can link them with resources, explain available programs and point them in the right direction to get started. Our farm loan teams are not located in each service center, but there is a farm loan team that's assigned to each service center. Contacting your local office is the best place to start and they can connect you with your loan team.

The Farm Loan Discovery Tool is excellent. It is located at farmers.gov/loans/farm-loan-discovery-tool. You will answer five simple questions that will generate several links with results. The Application Quick Guide is your primary resource and will include information about the loan process and partnering with a loan officer. It has a link to help you locate and contact your loan officer. Based off your answers, it gives you eligibility requirements, checklists and links for the applicable applications. If you're looking at buying a farm versus buying equipment or livestock, it'll direct you to the appropriate application.

Johanna:

That sounds like a great tool and a great resource for all farmers to be able to get instant gratification with direction and help with expertise.

What types of loans do you offer?

Types of FSA Loans

Leah:

FSA offers both direct and guaranteed loans.

For direct loans, we offer a variety of programs such as farm ownership, beginning farmer down payment, farm operating, and youth loans. The Farm Ownership loans are used primarily to purchase or to improve real estate. The limit of that is $600,000 and the term of that loan is based on the life of the security, but a maximum of 40 years. As part of that loan program, you can also have a participation loan and that is working with another lender providing up to 50% of the funds. This is one of the programs that we frequently work with another lender like, Farm Credit to expand someone's opportunities to buy a larger property.

The Beginning Farmer Down Payment program is an excellent program for someone that needs a down payment. It is a 20 year term maximum and the applicant is required to provide 5% cash down. FSA can provide up to 45% of the purchase price and another lender can come in with 50%. FSA's portion is at an excellent interest rate for a 20 year term loan to assist them in getting started.

Our Operating loans can be used to purchase livestock, equipment or to pay for a reorganization of a business, closing costs, or to refinance farm related debts. Our Youth loan program a $5,000 loan available to youth between the ages of 10 and 20, sponsored by a project advisor. They're typically involved in 4-H or FFA, a tribal youth organization or something similar in agriculture. They're using the loan funds for an income producing Ag related educational project. These are our primary programs and they are available to everyone that meets the eligibility requirements.

Johanna:

That’s great way to explain your different loan types. I heard you use two terms that I think we want to talk a little more about.

Can you explain the difference between direct and guaranteed loan programs?

The Difference Between Direct and Guaranteed Loans

Leah:

Direct means that you're going to work directly with Farm Service Agency. FSA underwrites, funds, and services the loan. Guaranteed means that the lenders are actually the FSA customer. Borrowers are going to work directly with a lender for the application process. The application comes to FSA from the lender.

Johanna:

For many farmers, we know startup funds can be a big challenge.

Does FSA provide any start-up resources for beginning farmers? If so, can you tell us more about them?

Start-up Resources for Beginning Farmers 

Leah:

We have a couple of different programs that are geared specifically towards beginning farmers. While all of our programs are available to them, they have what's called priority funding. Our loan programs have a pot of money that's set aside just for beginning farmers. There’s not a specific program that they need to qualify for.

In most cases, by being a beginning farmer, having 10 years or less operating experience would qualify them to have funds available as a beginning farmer. The loan with the Down Payment program is specifically for beginning farmers and socially disadvantaged groups. That one is not available to someone that's been farming for more than 10 years. They have to be a beginning farmer and the size of the farm can't be more than 30% of the average sized farm in the county where they're trying to buy a farm. That program is specific for beginning farmers.

Johanna:

What’s the difference between a Microloan and a regular farm loan?

What's a Microloan?

Leah:

Our Microloan program can be a farm ownership loan, which can be used to purchase a loan towards the down payment of a property. The Microloan Operating loan can be used to purchase equipment, livestock, anything that our regular operating loan program can be used for. The difference is that the Microloan program has a limit of $50,000 and in most cases, the application and eligibility requirements are less restrictive. It makes the program available to folks that maybe otherwise wouldn't meet our eligibility requirements.

Our Operating Loan program requires operating cycle experience to meet our eligibility. With the Microloan program, if they're working with someone through the SCORE program or in an apprenticeship situation, they can qualify for the microloan even though they don't have experience with an operating cycle.

Johanna:

My big takeaway is that there's a lot of different opportunities out there. Depending on your investment intentions or the project you’re working on, starting the conversation and getting down the right path to work towards your end goals is important. Starting the conversation early to get feedback and guidance as young and beginning, small farmers is important.

Johanna:

Amy, can you share with us a time when Farm Credit and FSA would work together on a direct loan?

How FSA Partners with Farm Credit

Amy Rowe:

We do a lot of joint financing for farm ownership loans with FSA. When someone comes in looking for a piece of property for their farm operation, we require 20% down. That is a Farm Credit standard and is standard for most commercial lenders as well. Land prices are high, so to purchase a farm with 20% down can be a burden on folks. If a person's been working on their operation, meet the eligibility requirements and need help financing, we can go to FSA to seek joint financing to help. The joint with FSA and Farm Credit as lenders would allow someone to purchase land that may not have been able too.

Another good example is if you started with an operating loan on rented ground with FSA. The operation and your net worth has really started to build, so now you're ready to go to a commercial lender for the next step. Farm Credit may still go back to FSA for assistance to purchase the property. Depending on what the customer needs, we work with FSA to cover a percentage of the purchase and then Farm Credit would finance the rest to give best option for that customer.

Johanna:

We’ve talked about where to start and all of the different options and now we're talking about the different paths and journeys that we see people head on.

Can you tell us why Farm Credit may request a guarantee?

Amy:

When we are looking at a loan application going through underwriting and the application doesn’t meet all of our credit requirements, Farm Credit may request a guarantee. We can actually utilize FSA’s guarantee program as a tool in our toolbox to make a stronger loan package and help to get the loan approved.  

An FSA guarantee allows us to make credit decisions that we may not have been able to without. It allows you to have a commercial loan with Farm Credit, but it gives us the benefit of having a guarantee in case something does happen with the loan. It allows us to be more comfortable with the credit decision, which allows us to make loans that we may not have made.

Johanna:

It sounds like for many young and beginning, small farmers, there's two types of loans to consider, one being this direct loan type and the other being guaranteed.

Leah, I assume that those two paths may be a little bit different.

Can you walk us through the process of applying and receiving either a direct or guaranteed loan?

The Process of Applying for an FSA Loan 

Leah:

Both paths technically start with a conversation. You want to start by talking to your loan officer about your operation or your planned operation, so that the loan officer can guide you to either direct or guarantee.

With the direct path, you're conversation with the loan officer will result in an application. With guidance from your loan officer, you will have 30 days to complete the application. Once the application is complete, the loan officer does an environmental review to determine eligibility and feasibility that can take up to 60 days. They will complete a write up to document about the operation and how the operation meets the requirements. We work diligently to try and keep that as close to 30 days as possible.

You will be notified with a phone call and a letter if you need to address some environmental things. Once received, you have 15 days to respond to the loan approval letter, which gives conditions of the loan. It’s important to read those conditions to be aware of the next steps to take. They will continue to communicate with their loan officer moving towards closing.

The guaranteed application process is a little bit different. The guaranteed application comes to FSA from the lender.  Farm Credit is considered one of our preferred lenders, meaning they have a lot of experience with the FSA Guaranteed program. FSA has approved a credit management system that Farm Credit operates off, which has limited requirements to provide to FSA. They provide us with a narrative that is reviewed by the FSA loan officer and a decision is made in 14 days. In a 14 day period, a decision is made and the lender can move forward with the applicant.

Amy:

The relationship between Farm Credit and FSA goes both ways. Leah talked about going to your local FSA office or loan officer about different loan options, but you could also come to Farm Credit first with. Farm Credit may say that everything looks good, but may need to reach out to FSA for assistance as well. Our relationship goes both ways of how we can work together to provide the best loan package for someone to make sure that they're successful.

Johanna:

I think starting the conversation and reaching out your local networks, but then also realizing that a lot of these resources work together is key. Depending on what your needs are will determine what path you go down. Everybody's path as a young, beginning farmer is different. It’s good to keep in mind as you walk through this journey to be open minded as you find the right solutions that fit your needs.

Besides farm loan programs, what other programs or resources does FSA offer?

More FSA Programs

Leah:

FSA offers other farm programs in risk management, such as the Dairy Margin Coverage program or the Non-Insured Assistance program. It also offers disaster programs that include emergency loans and conservation reserve programs to help protect our natural resources. There are additional programs within each of these categories that are geared to mitigate market risks and recover from natural disasters and things that are negatively impacting our farmers out there.

Johanna:

Lots of additional tool for people to take advantage of. Even if you're not a young and beginning farmer tuning in and listening to us, there are lots of opportunities out there to connect with resources and other agricultural professionals to help support your goals.

As young and beginning farmers make their start, what are some good business management practices you encourage as a loan officer?

Good Business Management Practices

Amy:

First and foremost, I encourage everyone to have a business plan, no matter where you are in your operation process. We have business plan resources on our website. I also really encourage and support folks in understanding what their true cash flow is and what that really looks like. What is your true income of your operation and what your true expenses?

I think once you know what your average income is and what your average expenses are before you even come to a loan officer, you can project what your income and expenses are for the next year. Having the data to support projecting expenses and profit allows you to feel comfortable with your finance decisions before you even come to a loan officer.  

Johanna:

Excellent advice and guidance for our young and beginning farmers that are just starting out.

As we wrap up today, I'm going to ask both Amy and Leah, our sign off question that we end every podcast with.  

What do you advocate for in agriculture?

What do you Advocate for in Agriculture?

Amy:

I really believe that there's room at the table for all types of agriculture. It takes all different types of Ag to feed and make the world go round. It’s really important that we all sit at the table together.

Johanna:

Leah, how about you?

Leah:

To kind of piggyback off of what Amy said, which is so true, we have an urban ag community that we see really growing in the DC and Baltimore areas. There is room at the table for everyone.  I think we all recognize the need for food supply to be available, especially coming off of this pandemic. Having open communication with lenders and other resources can afford you opportunities to grow, to start up and to be successful.

Johanna:

I think that we are so lucky in the MidAtlantic region to capture so much diversity within agriculture. I think that's one of my favorite parts of having the privilege of working in this region and this part of the country.

Thanks, Amy and Leah for joining us.

For more information about FSA visit fsa.usda.gov/.

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