FSA guaranteed loans provide lenders (e.g., banks, Farm Credit System Institutions, credit unions) with a guarantee of up to 90 percent of the loss of principal and interest on a loan. Farmers and ranchers apply to Valley, which then arranges for the guarantee. The FSA guarantee permits Valley to make agricultural credit available to farmers who do not meet Conventional Lenders’s normal underwriting criteria.
FSA guaranteed loans are for both Farm Ownership and Operating purposes.
Guaranteed Farm Ownership (FO) Loans may be made to purchase farmland, construct or repair buildings and other fixtures, develop farmland to perennial crops, or to refinance debt. The loans are usually amortized up to 25 years. Payments are dictated by the cash flow of the operation.
Guaranteed Operating Loans (OL) may be used to purchase livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance, and other operating expenses. Operating Loans can also be used to pay for minor improvements to buildings, costs associated with land and water development, family living expenses, and to refinance debts under certain conditions. These loans normally have an annual maturity.
FSA can guarantee OL or FO loans up to $1,799,000 (amount adjusted annually based on inflation).
Guaranteed loans are the property and responsibility of Valley. Valley makes the loan and services it to conclusion. If successful, the borrower is able to repay the loan and no taxpayer money will be used except for administrative expenses. If a loan fails, and Valley suffers a loss, FSA will reimburse the lender with Federal funds according to the terms and conditions specified in the guarantee.
Valley must notify FSA when a borrower is 30 days overdue on a payment and is unlikely to bring the account current within 60 days, or if a loan is otherwise a problem. Lenders are encouraged to work with the borrower to resolve any problems.
Once the Borrower has provided a complete Loan application, it takes one to two weeks to review the loan application and obtain Loan Committee and Board approval. At that point:
The Borrower works with Valley; Valley works directly with FSA.
Since Valley is a Preferred Lender with FSA, this process takes 20 days or less, subject to any real estate appraisals that might be required.
A beginning farmer is defined as one who:
Valley participates in the Beginning Farmer Program with FSA to help farmers purchase their first property. One example is that the Borrower contributes 10% of the project cost. Valley will provide 50% of the purchase with an FSA loan guarantee subject to conventional rates and farms. FSA will provide the 40% portion secured by a 2nd Trust Deed up to $1,000,000. This loan can be amortized for 20-40 years at a fixed interest rate determined by FSA at the time of loan closing.