The Big Sandy Mountaineer -

Farm Bill Raises FSA Loan Guarantee Limit


January 9, 2019

The USDA's Farm Service Agency is closed because of the government shut down, but the new farm bill, The Agricultural Improvement Act of 2018, has increased the agencies abilities for loan guarantees $1.75 million an increase from $1.40 Million. It also increased the direct farm ownership loans to $600,000 which doubles and increased direct operating loans by $100,000 to $400,000.

I researched on line at the American Bankers Association/Agricultural Banking and found that bank lenders are glad. They believe it's an overdue fix. According to Ed Elfmann, Senior Vice President for Ag and Rural banking policy at the American Bankers Association. It will give more flexibility. The more flexibility you have the better because operations have grown in size. Farms are not small, little operations are not like they used to be when the older limits where created. Family farm operations are complex with multiple families. With a FSA guarantee loan the bank is more willing to work with farmers during difficult times. If the farmer cannot pay the bank back the FSA reimburses the bank. Direct Loans are funded directly from FSA and they service the loan.

This has the possibility to help farmers especially during the continued decline in farm income. Income has continued to decline since their peak in 2013.

"USDA forecasts farm income in 2018 will be down 12% from 2017." There is a lot of ongoing stress in agriculture. Everyone would like to see higher prices, but that's not happening. Some areas had abundant crops giving the good yield which made up for low prices. But that isn't the true across the state.

It is hoped that more farmers will be able to take advantage of the higher loan guarantees to help them through these difficult times. The other side of falling incomes is the rising cost to raise a crop. Elfmann said "it can cost upward of $4 million to start a farm from scratch today. When we look at things like that, $1.75 (million) still doesn't get us there, but it gets us a lot closer than $1.4 (million) did. We're going to keep pushing for them to go higher because 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."

When up-front capital expenses are more than FSA guarantees can support. Elfmann said, "farmers have used the Small Business Administration, which can guarantee 75% of a loan up to $5 million." SBA loans have been controversial.

He said, "the farm bill made two other subtle but important changes to FSA lending. It indexed loan guarantees to inflation, so they'll increase over time, and it raised the overall authorization for FSA lending to $12 billion, up from $4.2 billion. Annual appropriations will continue to set the amount FSA loans out each year, but Elfmann said the expanded authority gives Congress more flexibility to add funds when demand is high."

Local banks are happy because it provides some farms with certainty for short or long term for at least next three to five years. Elfmann said, "Now they can move forward without the anxiety and apprehension that may have existed even if they would have just done an extension. It's good to have it locked down and in place."


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