Episode 39: Navigating the Farm Service Agency (FSA) Loan Programs with Kurt Leber
For young, beginning, or starting farmers, accessing the necessary financial resources you need can be a bit of a daunting task. As a new borrower, you might be wondering where to even start. That’s where the Farm Service Agency (FSA) comes in.
In this episode, Kurt Leber, district director with the FSA, breaks down the ins and outs of the FSA and its loan programs for new farmers. Kurt also sheds light on the qualifications, requirements, and benefits of working with FSA, and how the FSA collaborates with AgCredit to set borrowers up for long-term financial success.
Here are a few important things beginning farmers should know about working with the FSA:
Understanding the Farm Service Agency (FSA) and its Programs
Originating from the New Deal during the Great Depression, the FSA has evolved into a multifaceted agency with distinct areas of focus. Today, the FSA operates under the United States Department of Agriculture (USDA) and primarily deals with farm programs and farm loan programs.
Funding FSA Programs
FSA’s farm loan programs are funded through an annual budget to ensure a steady flow of resources to assist farmers and their financial endeavors. On the other hand, the farm program side of FSA is authorized and funded through the Farm Bill.
Benefits of Working with FSA and Guaranteed Loans
Working with FSA offers a multitude of advantages to borrowers. FSA does not compete with commercial lenders. Instead, they aim to guide borrowers toward securing commercial credit. One of the primary ways the FSA facilitates this is through guaranteed loans, wherein the FSA provides a guarantee to lenders, reducing their risk and enabling borrowers to access financing more easily.
Collaboration with AgCredit
As a preferred lender, FSA is a trusted ally for AgCredit borrowers. Together, FSA and AgCredit work closely to create a streamlined process, faster turnarounds on loan applications, and facilitate a smooth transition for borrowers once their financial responsibilities transfer from FSA to the commercial lender.
Qualifications and Requirements for FSA Loans
To be eligible for FSA loans, borrowers have to demonstrate a need for financial assistance that can’t be fulfilled solely by a commercial lender. For underrepresented farmers, there are also specifically targeted funds set aside to address their needs.
Borrower Training and Graduation
As part of the FSA lending process, borrowers undergo borrower training to enhance their financial knowledge and strengthen their farming operations. The goal is to “graduate” borrowers by successfully transitioning them to commercial credit. FSA provides courses in financial management and production management, tailored to the specific needs of farmers.
Navigating financial opportunities as a young or beginning farmer may seem challenging, but the Farm Service Agency’s loan programs offer a lifeline of support. From guaranteed loans to borrower training and collaboration with trusted lenders like AgCredit, starting farmers can take advantage of the guidance provided and set themselves on a path to success.
This episode was a goldmine of information about FSA. To learn more, listen to the full episode.
Here’s a glance at this episode:
- [01:30] Kurt introduces himself and his background in agriculture.
- [04:10] Kurt explains what the Farm Service Agency (FSA) is and its two main areas of focus, farm programs and farm loan programs.
- [07:16] Kurt explains the two ways FSA is funded, through the Farm Bill for farm programs and through annual funding for the farm loan side.
- [09:01] Kurt shares the benefits to borrowers by working with FSA.
- [15:41] Kurt explains the qualifications and requirements needed from the FSA to obtain and maintain a loan.
- [20:17] As part of the FSA lending process, Kurt explains the borrower training requirement.
- [27:16] Kurt explains the different types of loan programs FSA offers.
- [30:46] Given some lending scenarios, Kurt answers questions borrowers typically have about certain loan programs.
- [34:07] Kurt explains the lending limits on guaranteed loans versus direct farm ownership loans.
- [37:44] Kurt shares how AgCredit works with FSA as a preferred lender.
- [44:18] Discussing the borrower training requirement in more detail, Kurt shares FSA’s goal in “graduating” borrowers.
- [47:49] Kurt shares information about what the Inflation Reduction Act is and how it might provide relief to some borrowers.
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Kurt lives on the family farm where he has spent his entire life, just South of Monroeville, Ohio with his wife, daughter, and two sons. After graduating from Ohio State with a degree in Agricultural Education in 2009 he was fortunate to begin his FSA career as a Farm Loan Officer Trainee in the Norwalk office. He worked as a Farm Loan Officer until 2018 when he became the Farm Loan Manager in Norwalk. He accepted a position as District Director in July of 2021 in Northwest Ohio. Aside from his FSA career, he farms with his dad and brother and also operate a small trucking company with his brother. Additionally, he enjoy spending time with family and friends, golf, staying involved in his local community and also officiates basketball games during the winter months.
Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must have information on all things from farming to finances and everything in between.
Libby Wixtead (00:26):Welcome back to another episode of AgCredit Said It. I'm Libby Wixtead, and I'm actually here with Brenna finally. How are you, Brenna?
Brenna Finnegan (00:34): I know. It's been a while, hasn't it?
Libby Wixtead (00:35):It's been a long time.
Brenna Finnegan (00:37):Almost a season.
Libby Wixtead (00:38):Probably. Probably. We have an exciting episode today because we are talking with somebody from the Farm Service Agency.
Brenna Finnegan (00:48):It's been a while. Well, I actually, a couple of weeks ago we had Dawn on and she's a loan officer pretty much there through them.
Libby Wixtead (00:58):This will be a good episode to kick off anybody that's looking to start a beginning farmer loan or looking for purchase any land or any operating loans or anything like that that needs a little bit of extra help. That isn't able to get any financing through us as of right now.
Brenna Finnegan (01:17):We are here with Kurt Leber and he is a district director with FSA. Thank you for joining us. Welcome.
Kurt Leber (01:23):Thanks for having me.
Brenna Finnegan (01:24):All right. Why don't you just dive right in and tell us a little bit about yourself, what you do, how you got there, all that kind of good stuff.
Kurt Leber (01:30):Sure. Well, I grew up on a farm just south of Monroeville and went to Ohio State, graduated with an ag ed degree actually, and got into looking around at different jobs. When I graduated, they weren't really hiring teachers and came across an opportunity with USDA and didn't really have much of a financial background, but they do a really nice job of training with USDA. I got in as what was called a farm loan officer trainee position. From there, graduated into a farm loan officer. Worked in that position for about nine years here in the local area, Norwalk. From there, eventually became the farm loan manager in the office for a few years. Then the position opened up to become what's called a district director, and it's oversight now of the farm loan programs, as well as the farm programs in a 15 county district.
Libby Wixtead (02:34):What does your district look like?
Kurt Leber (02:37):Okay, we're district five, and if you can imagine maybe overlaying the shape of Florida and starting in the northwest corner of Ohio. I cover Williams in Defiance County across Route 6 in the turnpike to Huron and Erie, including Crawford, Seneca Counties, and then down to Knox County. Ashland, Richland in between there. It's 15 counties in between that district.
Libby Wixtead (03:05):That's quite a wide variety of counties and different agriculture mixed into all of those counties.
Kurt Leber (03:12):It is. We've got, in the Northwest district there, Defiance County has a lot of CRP work up there, a lot of conservation, especially when you get along the lake. When you start getting farther south, we have different types of conservation because of some of the rolling topography, so a lot more waterways, things of that nature. It's definitely an interesting cross section to have. Some of the larger producers are Wood County, Henry County up in that neighborhood, and you have the smaller operations as well. Then especially in Norwalk and a little bit coming into Toledo now too, but Norwalk services Cleveland out of the loan district. We have our urban ag initiative up in Cleveland going on right now. That's a completely different experience for everybody, too. We cover the gamut, especially out of this district.
Libby Wixtead (04:10):That's a wide variety. You mentioned some of the programs there, can you give us an overview of what FSA is and all the different pieces and parts of it?
Kurt Leber (04:21):Sure. FSA started out as a product of the New Deal back in the Great Depression, the Dust Bowl era. It's morphed over the years into a number of different iterations of the agency depending on what the need was at the current time. The latest happened in 1995 where it used to be the ASCS and the Farmer's Home Administration. They actually brought those agencies together. The Farmer's Home Administration used to have rural lending and housing, and they split that off. Housing went into what's now known as Rural Development, and the farm loan side of it came into FSA. Then the ASCS also came in. For a year, they called it the CFSA, the Consolidated Farm Services Agency. Then they changed it to just the Farm Service Agency.
(05:13):But it's unique because we do have two different focuses. The farm program side is where our entitlement programs, our ARC PLCs, our CRPs, our things of that nature, our dairy, our price supports, where those are administered. Then our farm loan programs are what you're used to with banking and I guess that type of thing where we're making loans, we're actually guaranteeing loans through our commercial lender partners. It's a unique setup within the government because there's not many that have multiple focuses like we do.
Brenna Finnegan (05:57):Some people get confused with USDA, FSA. FSA is a part of USDA.
Kurt Leber (06:05):Yes. USDA is the overall department. That's a federal department. There's a secretary that sits in the president's cabinet, that's the Secretary of Ag, Thomas Vilsack. Then we have agencies within the USDA. The Farm Service Agency has our administrator. Then that's our construct there. Administrator reports to the Secretary of Ag and then we have our various areas and responsibilities below that. But the Farm Service Agency is actually grouped under a separate subtitle called FPAC, and that is FSA, NRCS, Natural Resource Conservation Service, the rural development and RMA, Risk Management.
Brenna Finnegan (07:03):That's a good collection.
Libby Wixtead (07:04):It is. Everything that all of our customers need.
Brenna Finnegan (07:08):Exactly. All in one spot. How is FSA funded?
Kurt Leber (07:16):Like I said, FSA has got two different subsects. We also have two different ways that we're funded. Farm loan programs are funded through the annual budget. If you've participated in our programs in the past, we used to have times where we'd have limited funding availability, especially start getting this time of the year. That hasn't happened in a while. Congress has been very generous in funding our programs. We've shown a very low delinquency rate. We've shown an efficient way of getting money into the communities and a positive return on the investment. Congress has really done a great job of funding our programs. We haven't had to work about that, but that's the funding comes every October 1st through the annual appropriations bill for farm loan programs.
(08:02):The farm programs side, funding for that's authorized through the Farm Bill. That Farm Bill is every five or so years, depending on if there's extensions or whatever. But that Farm Bill sets up the programs, authorizes Congress to initiate ad hoc programs, which we've had a ton of here, especially since the pandemic and other disasters that have gone on. That's a little bit more set in stone at least where the funding is on that. We know the funding is there, it's available, it's by law, it's got to be there. Whereas the farm loan side, that's more of a cyclical annual thing.
Libby Wixtead (08:43):That's a great thing that we are funded yearly, annually just because I mean, we do a lot of guaranteed loans, which we'll talk about here in a little bit, and a lot of direct financing. We don't ever want you guys to run out of money for our guarantees.
Brenna Finnegan (08:59):No, that would not be a good thing.
Libby Wixtead (09:01):But I guess, I mean, going off of guarantees, what are the benefits of working with FSA directly or using another lender to have guaranteed loans?
Kurt Leber (09:11):With the farm loan program, we don't compete with the commercial lenders. We can operate very similar to a commercial lender with our direct loan program, but our goal is actually to get people into the hands of commercial lenders. We're trying to develop their financial acuity. What we'll do is if somebody comes to us, we'll ask, "Have you talked to a commercial lender yet?" If they haven't, then we'll encourage them to reach out to the lenders in their area, see what they're willing to do for them. We'll talk to them about the guaranteed loan programs first. Because the first thing is, okay, for instance, let's just take AgCredit. Go talk to AgCredit over there, see if they're willing to work with you, even if we have to get a guarantee. We'll explain what the guarantee is. What it does is it allows the lender some flexibility in their lending practices. You can weigh in if you want to on how you guys actually use them.
(10:08):But from our standpoint, it allows the lender to maybe offset some risk that maybe you wouldn't make the loan if they just walked in off the street with no other backing. But we'll guarantee that loan up to 90%. Basically what that means is if you walk out tomorrow and default on that loan and everything's liquidated, we'll cover 90% of any type of loss that's left over for the lender. They're only really carrying 10% of any type of risk after a liquidation. That's significant. It's a minimal cost, one time to the lender. There's some other guarantees out there through other federal agencies that are an annual fee. FSA is a one-time shot. I think that's pretty significant.
(10:55):A lot of benefits from that aspect. Then if it's just a situation where it doesn't work out to work just with a guarantee, we'll look at maybe a participating arrangement where FSA will take on a portion of the debt directly. Maybe AgCredit or another lender's still involved with a guaranteed loan and we take a junior lien through FSA. We'll do that. If that isn't an option either, then we'll look at doing the entire thing depending on our limits with a farm ownership loan up to $600,000 we can do through FSA directly as if we're the bank and we're carrying all the obligation and the underwriting and everything.
Libby Wixtead (11:43):Where is the interest rate right now for those farm ownership loans?
Kurt Leber (11:48):Like everything, they've creeped up. The days of borrowing at a 2% or whatever through FSA, they're gone for now. I have to check a 100% certainty, but they're around four and a half to 5% for our long-term rates, which they're still pretty good. It's hard to complain about that. Somebody in the building here once told me the average 30, 40 year average interest rate is 8%. This was back when stuff was 3%.
Brenna Finnegan (12:21):I know who said that.
Libby Wixtead (12:22):I do, too.
Brenna Finnegan (12:25):It wasn't me.
Kurt Leber (12:26):I've used that line a lot, "Hey, things are going to get back that way," and they're going to go over that because 8% is an average, that's the way they work. You get higher than that and well, we're here. The pendulum swings and we'll come back down at one point, but it's just the way the market works.
Libby Wixtead (12:46):I just think for any beginning farmer, I mean, if you are able to do a direct loan or do any participating loans with AgCredit and FSA, you said four, four and a half, something around there?
Kurt Leber (12:59):Yes.
Libby Wixtead (13:00):That interest rate is... I mean, wherever it is, if it's in the fours.
Brenna Finnegan (13:04):Four and three quarters is sticking out in my head for some reason.
Libby Wixtead (13:07):But anyway, I mean, that's just a cost savings. That is how you're going to be able to purchase a farm because there are some loans right now that we are able to approve before, a year ago or two years ago, but now we can't because of just the interest costs that you have. Being open to working with FSA, I think is an absolute must right now.
Brenna Finnegan (13:31):It's a real advantage for your cashflow.
Kurt Leber (13:32):We have a couple of other programs, and the rate I'm talking about is if we're doing a hundred percent of the financing with FSA. If we're participating with another lender, there's a cap to it, or I guess a floor to it. Two and a half percent on our participating loans. Right now, it's two and a half percent and there's a formula there. Once we get over a certain rate with our direct loan rate, then that'll maybe start creeping up. But since the inception of the program, we've been at two and a half percent on the participating rates. Which again, nothing to sneeze at, especially when you're looking at whatever you're looking at commercially. Then if you're a beginning farmer or a socially disadvantaged applicant, underserved applicant, you could qualify potentially on a farm purchase for what's called a down payment program.
(14:20):The down payment program is structured so that FSA covers up to 45% of the purchase price or it's capped at a certain number too. Up to 45% of the purchase price at one and a half percent fixed interest on a 20-year amortization. The caveat there is that you bring in a participating commercial lender, they cover their portion at their rates for a 30-year term, and then you provide 5% cash down payment. If you've worked with trying to obtain a real estate loan, five percent's extremely reasonable and one and a half percent of a portion of your funding is significant.
Libby Wixtead (15:02):Just so our listeners know, we will put all of these details in our show notes, so if you're driving or riding in the tractor or whatever, we'll have these in the show notes that you can refer back to.
Brenna Finnegan (15:14):You've touched on it a little bit, the qualifications of working with FSA. You mentioned minority, under advantaged or underprivileged. Touch on some of that a little bit.
Kurt Leber (15:27):Sure. We work with a variety of producers. We have some targeted funds, they're not necessarily funds that are specific, but I guess, targeted. What we do is at the end of the year, we'll pool funds together. It's not like it's just for certain people. But there are funds pulled aside just so that for female applicants, so that if we would run out of funds that somebody that comes to us from a certain group that hasn't been served all year, "Well, sorry, we don't have any funds left." No, we hold those back and then at the end of the year, if there's a need, we pool all those funds together. But to be eligible to work with FSA, you've got to show a need to work with FSA. A lot of times beginning farmers qualify just because they're not able to gain all their financing through a commercial lender, and that's what we call the test for credit, and that applies to everybody that we work with.
(16:27):You've got to be unable to obtain all of your financing needs through a commercial lender for what you're looking to do. That's really what it comes down to. From there, it depends on whether you qualify as a beginning farmer. To qualify as a beginning farmer, if you're buying real estate, there's a 30% of the average farm size in the county. You have to own less than that before the purchase and also have been farming between three and 10 years. That's our qualification for a beginning farmer. Beyond that, it's like I said, it relies on the test for credit.
Brenna Finnegan (17:03):A new farmer, this is going to be their first season. Odds are they're probably not going to be able to get funding from FSA?
Kurt Leber (17:11):It depends on what they're looking to do. It's tough to come into farming and just buy land and say, "Hey, I'm never done anything like this before. I want to come in and buy land and start farming tomorrow." Everybody that's been around farming knows that's-
Brenna Finnegan (17:26):Not how it works.
Kurt Leber (17:27):... the practicality of that, it's hard. One of my collateral duties, I'm actually on the Beginning Farmer Rancher Team for Ohio, which consists the other three agencies I mentioned earlier, and we field a lot of questions from beginning farmers. How do we get started? Well, we have some ways to qualify to meet the three-year requirement to buy land. I think you guys probably have some of those things as well. Other lenders have in place a three-year requirement of some sort of experience. We can substitute two of those three years when we're buying land either with education in an agriculture related field, industry experience, whether that's as a farm manager or significant contribution to an operation in the bookkeeping and things of that nature, decision making.
(18:17):We can look at, depending on the size of loan, if you've been involved with certain qualifying education courses or score program or anything like that, we can get creative with some of that stuff when it comes to buying land. But if you're coming to us and it's your first year, you've got a piece of land you're leasing out and you say, "Hey, I need funding to operate," we can certainly look at that. We just need one year of something. If you have a degree in agriculture or you've been part of your family operation or whatever that is, or you've taken any of these qualifying educational courses, whatever they may be, there's some incubator classes out there through Central State University, Ohio State University puts on some good courses. Those can qualify to get you to that one year requirement for shorter term loans to either buy equipment or gain operating.
Brenna Finnegan (19:19):It's not necessarily always cutting somebody off at, "Well, you haven't been doing it for three years, so we can't help you." It's, "Okay, let's look at the background. What constitutes the contribution to those three years?"
Kurt Leber (19:32):Yeah. We don't try to say no, we try to say, not right now if that's what it is. We try to show you the way forward and how to get to the point where you could be eligible to do what you're looking to do. That's the biggest thing is like I said, not no per se, but maybe just not right now. Let's get you to that point. Let's help you understand where you're going to qualify.
Brenna Finnegan (19:54):What are the requirements of obtaining and maintaining a loan with FSA?
Kurt Leber (20:00):Sure. Well, it used to be called Supervised Credit, now it's called Progressive Lending. We change vernacular all the time.
Brenna Finnegan (20:10):That's the Government, right?
Kurt Leber (20:13):You guys do it, too.
Brenna Finnegan (20:14):Touché.
Kurt Leber (20:17):But anyways, the whole point is that, like I said, we're trying to get our producers to a point where they're eligible for commercial credit and what we call graduation. In doing that, we collect annual financials, which I think is pretty standard for most lenders, but we actually sit down and go through those numbers and we'll talk. Try to update the farm assessment every year and we'll do an operational review is what it's called now. We'll go through your operation. It's a little bit more, I don't want to call it… I'm going to call it handholding. It's a little bit more handholding through the process, but it's with the goal of trying to get your operation on solid footing or get you to a point to where an AgCredit or somebody else is willing to say, "Hey, that's a good financial risk for us to take on."
(21:08):By being as involved as we are, we're not going to sit there and tell you you have to sell your beans today or tell you anything like that, but we're going to sit back and look at the operation, look at your balance sheet, look at your cashflow projection, look at what you're doing and maybe say, "Okay, well..." And ask questions. Why are you doing this? Or how are you getting to this point? Or what's your goals and what's your plan to get there? Just thought-provoking things to try to ifnNothing else, try to catch problems before they become problems for you.
Brenna Finnegan (21:40):Now, there are some that have to do a financial type course of some sort-
Kurt Leber (21:46):Yes.
Brenna Finnegan (21:46):... just to help guide them. Especially, I mean, I think it's a real advantage to be able to go through something like that, especially when you're first starting out because sometimes it, "Well, what's this classified as?" Or, "How can I make this work?" Or whatnot.
Kurt Leber (22:01):As part of our lending process, there's borrower training and that's a requirement. It can be waived in certain situations where we have an abundance of experience, financial background, things of that nature. If you come and you have your books all in order and you demonstrate that maybe this isn't something that applies to you, you can apply for a waiver for that. But on the whole, we typically require that. The reason why I push to require that is just like you said, you can't hear that stuff enough. You guys worked in lending. You know that. We're constantly learning more stuff or reminded of certain things, and we work with it every day. We have a number of vendors that you can select courses through. We have two different types of training. One is financial management training and the other is called production training or the production course.
(22:57):The production course doesn't actually tell you like, okay, how deep should I plant my corn? Or anything like that. When should I look to spray? It doesn't get into that. The financial management course is general finance. The production management course, you actually choose what type of industry you're in. Is it cattle, is it other types of livestock? Is it corn, soybeans, wheat? It takes those financial principles and applies it directly to your type of operation so that you have an idea of maybe some things to look for. Maybe the ratios maybe are a little bit different because of the cash flow during the operating cycle. It's tailored more towards that. The feedback we've had from people that have taken the courses with OPEN MINDS has been really good. I think we have some good vendors that have some nice products out there to look at, and the cost really of doing it is very minimal.
Libby Wixtead (23:54):I think that is so beneficial for a young beginning farmer or anybody that's just starting out just to have that. I know Brenna has talked about just learning how to put your books in order, how do you need to organize things? How do you need to present your financials to your lender? Just how to keep track of things because I think when you first come into it, you're just very, very overwhelmed. Then it's like, "Oh, I didn't know I had to do that," or, "Oh, I didn't know how..." Until we start asking questions.
Brenna Finnegan (24:23):I never thought of that comes into play.
Kurt Leber (24:28):When you're coming to a lender to ask for a loan, you're asking somebody to take a risk on you. The more you can bring to the table to show that, "Well, I have these risks, but here's what offsets those risks. I know what I'm doing with my finances," or, "I have additional collateral," or whatever that offsetting feature is to your risk, that's going to go farther towards folks like you making loans. It's a sales pitch. You're trying to say, "Hey, I'm a good risk to take and this is why."
Libby Wixtead (25:05):I think it's so neat to see your customers grow because then they come in the next and it's like, "Oh, I have a 1231 balance sheet and oh man, I can see the difference from year to year." It's like, "Yes, we finally got there." It's just really neat because then they have a better understanding and they make better choices production wise, management wise, to increase whatever their goals are on their operation.
Brenna Finnegan (25:32):Well, it keeps them on track as far as, like you just said, their goals because each year you can see that progression and obviously we want it to get better and better and better because we know at the beginning it's not going to be the best looking.
Kurt Leber (25:47):Well, nobody gets into farming to keep books.
Brenna Finnegan (25:50):Right? I know.
Kurt Leber (25:53):There's a lot going on, so things get put on the back burner, and it's really easy when it's something that you're not comfortable with or you don't understand a hundred percent. That's the first thing that's going to get shoved aside. Unfortunately, your bookkeeping is one of the first things that's going to get you in trouble.
Libby Wixtead (26:10):Oh, absolutely.
Brenna Finnegan (26:10):Correct.
Libby Wixtead (26:10):If you get behind on that or you don't understand what you're doing with it, you don't understand what the numbers are telling you, that can really cause some hiccups and put you in a bad spot. Getting involved and getting out in front of all this stuff is definitely a benefit.
Brenna Finnegan (26:24):I'm sure we've all heard, "I'm going to do so much better this coming year. Every month I going to sit down for a day and just do it," and then three months go by.
Libby Wixtead (26:33):Then it's this time of year and it's like, "Oh, man.
Brenna Finnegan (26:34):I didn't do it.
Libby Wixtead (26:35):I'm so behind, up through the spring. Okay. Well, we are going to take a quick break.
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(27:16):Welcome back we are here with Kurt from FSA. We've learned a little bit about the requirements that FSA requires to get into your programs. Obviously what FSA is, what department it's a part of, all that kind of stuff. So we're going to dive in a little bit more, and you actually mentioned this a little bit before. What are the different loan programs that FSA offers?
Kurt Leber (27:37):Sure. We have the main overarching loan programs, the farm ownership loans, which are our long-term loans. Just like they sound like, we can buy land with them, we can make large real estate improvements. We can, whether it's buildings or tile or things of that nature, fencing, anything that's got to be termed out over 10 years or longer up to 40 years. Then we have what's called our operating loans, and that's split into two different types. We have term operating loans, which again can be used for equipment, breeding livestock, shorter term building loans, anything along that lines. Then we have annual operating loans, and they function a little bit differently than what most products are for operating. A lot of lenders have what's called a line of credit, which is a revolving line every year, and you have it for maybe a term of five years and maybe there's a qualification that you have to pay it down to a certain balance every year.
(28:39):We have an annual operating loan, which you can't pull from and pay back and pull from and pay back multiple times during the year. Say if you need $20,000, but you need that $20,000 five times during the year, you're going to come to us for $100,000 annual operating loan, you're going to take $20,000 out and then you're going to pay that $20,000 back and you're going to do that five times. It's a little bit different product. The reason we have it that way is what we talked about earlier. Our funding is on an annual basis, so we can't go out past the current fiscal year's funding on our loan programs. But with that, we do mirror the commercial sector a little bit with what we offer with our loan programs. Now, within those loan programs, we have different types of loan structures.
(29:30):We talked a little bit about the beginning farmer down payment program. We can mix that up. We can utilize the joint financing arrangement either with our operating or our farm ownership loans on different projects. We also have the microloan program, and that microloan program is for operating or farm ownership loans up to $50,000. We can use a microloan in conjunction with a participating loan. If you have a scenario where maybe you're looking to purchase land, you're pretty strong, but you don't have the down payment, that $50,000 could be used for a down payment. It's a quicker process to getting a loan, a little bit less documentation needed on our part to get to a yes on that. Then it can speed up the closing date.
(30:20):Additionally, we're piloting some different things within the agency right now. One is called Fast Track Application. I think you guys have something similar to that, most lenders do. Where we'll have a scoring process where we may not have to do a full underwrite. That's in testing right now, and we'll see how that goes. But we have a couple locations in Ohio that are working on that. That's exciting.
Libby Wixtead (30:46):That is very exciting. Anything fast track is awesome. When you are talking about your joint financing, the 50/50 is typically what we call it, is that to buy land? Is that for buildings? Okay, I'm going to give you two scenarios here. My husband and I, let's say we're coming to you and we want to build a hog barn and we're beginning farmers, can we do a beginning farmer down payment loan?
Kurt Leber (31:14):We can do a joint financing arrangement.
Libby Wixtead (31:17):Okay.
Kurt Leber (31:18):The down payment program is strictly for buying land, but we can do the joint financing arrangement where we're 50/50 on building structures like a hog barn, anything like that. Now, we can also do the joint financing for non-beginning farmers to buy land. Even if you're not a beginning farmer, if you need help with the financing of land, we can still get you in at that two and a half percent on FSA's 50% portion, and we're not going to require a 5% down payment. The disadvantage there is that the guarantee that you would obtain on the remaining 50% would be at 90% with the guarantee fee, which is one and a half percent of the 90%, if you can follow that math. But at any rate, on the beginning farmer down payment program, that's actually a 95% guarantee with no guarantee fee.
Libby Wixtead (32:09):Okay. The joint financing you can do buildings with, but not the beginning farmer down payment loan.
Kurt Leber (32:14):Correct, yes.
Libby Wixtead (32:16):Okay. That's just something I wanted to clarify. Then my question is a lot of my customers get confused when you talk about the land loans over here, but then they're coming in for CC type loans or facility loans, and then it's the county office does that, but then they think the county office also does the farm ownership loans and the direct financing piece or the 50/50, whatever on the land fees. Can you talk about that and clarify that confusion?
Kurt Leber (32:43):Sure. The facility loan program falls under our price support along with the market assistant loan, the MALs, those fall under the price support section on farm programs. We talked about the different funding. Those are authorized through the Farm Bill. That's why they fall under the farm program. The county office responsibilities for administering those loans, they have a vastly different process for application, for security, for everything else it's quite different. It's just how the program is written. Farm loan programs is more, I guess, lender associated. It's more like that process. The other programs are more on the front of trying to support activities that would allow you to maximize your price. That's why you're able to build grain bins. That's why you're able to advance funds on grain stored for a later date. There's some different goals there.
Libby Wixtead (33:49):Okay. That's good to know because they're always like, "Well, county office does this." I'm like, "No."
Brenna Finnegan (33:56):It's two totally different things.
Kurt Leber (33:57):They are.
Libby Wixtead (34:00):As a customer, they don't understand that aspect. That's just good to know. That's a good explanation.
Brenna Finnegan (34:07):Yes. Okay. We've talked about this a little bit, too. Direct money versus guaranteed money, and there are limits to those. You've already talked about direct money of $600,000 and that being broke down. What would it be on guaranteed funds and what is that?
Kurt Leber (34:26):Sure. Our guaranteed lending limit overall, that changes every year. Rate of inflation affects that. It's gone up quite a bit here lately. But for fiscal year 2023, which runs through September 30th, our limit is $2,037,000. That's our guaranteed limit, and any guarantee, falls under that. Guaranteed OLs, operating loans, guaranteed farm ownership loans combined $2,037,000. If we have direct farm ownership loans, that limit is $600,000. If you're getting into direct operating loans, that limit is $400,000. We haven't had emergency loans. That falls in when we have a declorated disaster. Depending on what happens, we may get into those, but that limit's $500,000. If you're getting into the beginning farmer down payment program, the maximum that we'll lend from FSA's portion is $300,150 for that one and a half percent.
Brenna Finnegan (35:33):They never just pick a number and go with it, do they?
Kurt Leber (35:37):There's a whole reason behind it. But when you start research, and we won't get into all that, but there's a whole reason why we end up with the extra $150 there. It has to do with the authorization and the way it was written in the regs.
Brenna Finnegan (35:54):A fee. It's just a fee.
Kurt Leber (35:56):At any rate, we get into combined assistant types. We start looking at, if we have a farm ownership loan from FSA and a farm ownership guarantee, just farm ownership or just operating loans, that cap is still $2,037,000. We can't combine those and say we have 2.6 million plus, but if we start looking at having operating loans and farm ownership loans mixed in there, that's when we can start expanding that limit and we can get up to $2.637 million. If we would happen to throw an emergency loan on there, that additional $500,000 is on top of that. That gets us all the way up to 3.137. We get to that point, we work pretty closely with you guys when we get into those scenarios and trying to see where our limits are and where we can push. But they've really tried to push those expanded limits to try to capture a wider net of people that need our help, especially with land prices going up. We've got land prices going up around here, but you don't have to travel very far to hear some real stories of land prices really going up.
Brenna Finnegan (37:13):I have a sticky note on my desk and it has four lines through what the limit was. Each time it's been updated.
Kurt Leber (37:22):That means you've been here four years/
Brenna Finnegan (37:24):A little longer, but... Well, no, it was four and a half. It's got four numbers on there.
Libby Wixtead (37:29):But that's exciting with the new Farm Bill coming because some of those limits could be raised through the bill. You talked about working with AgCredit, and so how does FSA work with AgCredit?
Kurt Leber (37:44):We work quite well with AgCredit, to be honest. We have a pretty good relationship. AgCredit does a lot of guarantees and they're what's called a preferred lender. PLP status. Basically what that means is we trust you. You guys do a good job of making loans. You have a low delinquency rate. When you submit an application to us, we have a little less requirement for documentation and we can turn those around pretty quick. We also do a good job partnering when looking at graduating folks, that direct and guaranteed program, that joint financing arrangement, whoever the other participating lender is is pretty well set up to be a transitional lender for FSA debt. We do a nice job of working together. I think it's good open communication between us and we talk about our programs and how we can help the producers. Really enjoy the time that we spend working with all of our lenders, but especially AgCredit partners.
Libby Wixtead (38:45):Just to be a little bit more detailed, if somebody is applying for a 50/50 year, beginning farmer, they're able to come to us and we're able to put their balance sheet together. They do their earning statement and help them fill out the application and also send off some of that information to you guys just to help them. Because I've seen that application. The application is a little overwhelming for some producers, so we're able to do that. Then also the annual requirement of financials, we're able to send off if they brought their balance sheet and taxes into us as well. Correct?
Kurt Leber (39:23):Yeah. There's no sense in recreating the wheel. If you have something and the applicant okays it, we're okay with getting it from you and vice versa. If we have something and they're okay with us sending it over to AgCredit, sure, we'll send it over to you. There's no sense in doing it twice over. Like I said, nobody gets into it to do the paperwork. Might as well not do it twice.
Brenna Finnegan (39:43):Exactly.
Kurt Leber (39:45):Now on the application, that application has been changed recently. They've consolidated it to a much shorter, a lot less pages in the application process. Most of the information is still in there and still necessary, but they've made it a lot more streamlined, at least from a visual aspect. Hopefully, it's a little less daunting.
Libby Wixtead (40:07):That's exciting to hear. It's very exciting.
Brenna Finnegan (40:12):I always tell everybody, even if sitting down, it does take some time, but sitting down and doing that, when you sit and figure out the dollars that you're spending or borrowing or whatever, it is so worth the time to sit down and do that paperwork and to turn that in because just the amount of one interest you're saving by doing some participation or farm loan directly with FSA, I mean, you just saved. Think of an hourly rate that you're paying yourself and you just saved money by filling that out. I mean, it's so worth taking that time and doing it.
Kurt Leber (40:49):To be fair, we work with people that need us. Is it worth it to you to do what you want to do? I mean, we don't force anybody to work with us. If you want to buy that land, you want to build that barn, you want to do whatever it is, is it worth it for you to sit down and put that investment into filling that application out? Then from our standpoint, understand you're coming to us because you've been turned down or maybe aren't in a financial position to work a hundred percent with a commercial lender so there's more risk involved. Somebody else has already vetted you out to say that you're riskier. I mean, we're going to take a deeper dive into what's going on there. Not to say that there's anything bad, but we're going to actually examine the application maybe a little bit more under a microscope than what a commercial lender will.
Libby Wixtead (41:43):Maybe that is where the issue lies, too, is just having that full and understanding and then understanding why we need all of that information. It's like, "Oh, you needed that." Like we talked about earlier. Then it's like, "Okay, that makes way more sense to me now of why that matters in the loan application process."
Kurt Leber (42:01):We have a very low delinquency rate. I mean, we really do. Part of the reason why is because we do go through our applications with a fine tooth comb and try to point things out up front that we see maybe was overlooked or wasn't considered, and then we stay with the applicants throughout their loan time with us.
Brenna Finnegan (42:25):That's a real team effort though, too. I mean, I've had one of your loan officers come over and we've sat down actually right here in the room that we're sitting in and put their financials up and we discussed it point by point going through everything. It was a three and a half hour meeting and they walked away like, "Okay, we are totally doing this," and felt comfortable. We did the whole real estate loan. FSA was taken care of 1) If they were going to do a barn improvement to the livestock and equipment purchase and then also the operating. Them sitting down knowing exactly who was taking care of what. Why we were taking care of what, and then sitting down and going through the financials because I mean, they really wanted us to do a complete 50/50 or have FSA do the real estate loan.
(43:11):It's like, "But financially this works out for you and this is why." Then in order for them to see the difference, I mean, your loan officer went there and she said, "Well, I'm going to have to completely change this format and decrease your cash flow so that I can make it work for you guys. I don't think you guys want us to do that." It was like, after a little while, the light went on and it was like, "Oh, they really are all together having our backs on this, and if it wasn't going to work, none of us were going to do it."
Kurt Leber (43:43):It's in nobody's interest here to put anybody in a bad position.
Brenna Finnegan (43:47):Correct.
Kurt Leber (43:48):I've unfortunately had to turn loans down and it just is part of the deal we all have. But I've had people come up to me afterwards and say, "That was the best thing that ever happened to me."
Brenna Finnegan (44:00):They may hate you for the moment.
Kurt Leber (44:04):They hate you in the moment. They don't agree with you, but down the road another opportunity opened up that maybe was better or they weren't in a position. It would've put them in a hardship. It is going to make more work for everybody down the line if we put people in bad positions, and that's just not what we're here to do.
Brenna Finnegan (44:18):Okay. We've talked about obviously working together and all that kind of stuff and people hear the word graduation and then they think cap and gown, all that kind of stuff. What is it when the FSA says, "We're going to need you to graduate?"
Kurt Leber (44:32):We talked about the progressive lending or the supervised credit and the graduation is the culmination of that process. Basically, we do our annual or, what we're calling it now, operational review. Once we're through that operational review, we'll see where you're at financially. If you are in a position to where... Actually, I'll back up. Every year we survey all the lenders in the area, including AgCredit to see what your lending standards are. Then we'll compare your numbers against these lending standards and well, maybe you'll fit in with AgCredit or maybe a couple of these are off, but majority of these are pretty good numbers. Maybe they'll take a look at you and we'll ask you to go check out that lender. Once they say, "We'll take this on and this is the rate and terms," and everybody's good with it, that is essentially graduating out of FSA debt.
(45:25):When we make our loans, we make a 20, 30, 40 year loan. The anticipation is that you're not going to make your final payment with FSA. The anticipation is that we're going to put you in a position financially that you are going to be able to go out on your own and get that debt taken care of through a commercial lender. For a number of reasons. The first one being that we do have our loan limits. If you're going to grow in your operation, especially with the price of things going up, you don't want to be sitting here saddled by us in our loan limits. You want to move out into the world where, I don't want to get into what your loan limits are because it's, I'm sure multiples of what ours is.
Brenna Finnegan (46:09):We have them.
Kurt Leber (46:11):A lot more opportunity out there than what we have to offer. We're a starting point. If you think about it that way, we're a starting point and we want to get you into commercial credit. That's where graduation is.
Brenna Finnegan (46:24):Okay. Physically, it's refinancing.
Kurt Leber (46:25):Yes.
Brenna Finnegan (46:27):Yes.
Kurt Leber (46:27):Technically it's refinancing. Yes.
Kurt Leber (46:30):Is that the word you were looking for?
Brenna Finnegan (46:31):No, I just thought of it while sitting here.
Kurt Leber (46:36):I had a long way of saying it's refinancing.
Libby Wixtead (46:39):You should have been a lawyer.
Kurt Leber (46:45):I get you into the word jumbo.
Brenna Finnegan (46:45):How long can one expect to be? I guess, what's the average that somebody's in those loan programs?
Kurt Leber (46:52):I don't know if there is an average. I mean, I'm sure obviously there is an average, but it really depends on your operation. We have some people that stick with us for a year or two and they just needed to get through a certain point in their operation and they took off or we knew they were going to take off and we had that conversation up front, "Listen, you're not going to be here with us long, just so you understand this is what's going to happen. And yes, there may be additional closing costs or whatever down the line, but..." and we had that conversation. Is it worth it to go through this process? A lot of times it is. You're saving initial interest. That one year interest savings especially now can be significant, can offset that closing. You figure that over a couple of years, you're paying some principal down. It's not quite as large of a closing. We have folks that we do take to full maturity. It just depends on your situation.
Libby Wixtead (47:49):I think AgCredit's on the same page of, it's a good starting point for somebody and then later down the road as you grow, we'll get there. We're all on the same page and we really appreciate that first start for FSA. Okay, there have been some letters that have come out here recently talking about Inflation Reduction Act, extraordinary measures assistance. What in the world is this letter?
Kurt Leber (48:16):Every farm loan participant in the country got this letter and it's part of the Inflation Reduction Act. It's in Section 22006.
Brenna Finnegan (48:29):You didn't have any notes with that number, did you?
Kurt Leber (48:31):It's right off the top of my head. Anyways, they've been tasked with trying to define a few things, and one is a distressed borrower. The other is a borrower who has taken extraordinary measures to stay current with FSA. In order to do that, they've outlined five different things that could have been done over the past year to stay current with FSA that would be considered extraordinary measures. They range from taking a deferral out on a non-FSA loan, attaining additional debt that's not normally taken out in the normal course of your operation in order to stay current on your farm loan payment. If you were delinquent as of May 19, 2023, on essential family living or farm operating expenses in order to make your farm loan, there's some other caveats there. If you did an early withdrawal of what we'd call a non-liquid asset such as retirement fund, college fund, long-term investment, maybe I think sale of real estate or anything else like that would qualify.
(49:44):If you have done something like that to try to stay current with FSA where you wouldn't necessarily be looked at by FSA as a distressed borrower now, but it's because you took these extraordinary measures, what they're saying is that you can submit for relief from those extraordinary measures. There's two ways to do that. You can do it in person and there's a list in that letter. It's a long list, I'll be honest. But there's a lot of things, depending on your situation, you may have to bring with you to justify and prove the extraordinary measures that you've taken. You can also get onto our farmers.gov website, which is a very good website. I'll plug it again. It's probably one of the best things that FSA has done since I've been with FSA is developed that website, but it's farmers.gov and it's /IRA22006request. If you get into farmers.gov and you lose that link, you can get into farmers.gov and find it as well. But that actually will walk you through submitting it through that portal as well. There's two different ways to do that.
Libby Wixtead (50:51):We'll make sure that that information that Kurt just said is in the show notes so you guys can click it and just go. Well, that sounds like an awesome program for some of our customers that has direct money with FSA, if they did take those extraordinary measures to do whatever it takes to keep current on their loans, which in the past couple years could have been many people.
Brenna Finnegan (51:15):Well, I mean, I'm thinking of somebody who actually withdrew money from there 401k in order to purchase something. Is that something that might fall under that?
Kurt Leber (51:26):Potentially. Now understand this is new to everybody-
Brenna Finnegan (51:30):Correct.
Kurt Leber (51:30):... including FSA staff. We're learning as we go.
Brenna Finnegan (51:33):Patience.
Kurt Leber (51:33):Yes, we're learning as we go as well. We're going to try to walk through all the regulations. My understanding is that whatever the need to make FSA's payment was. I think there's an example in the letter. If you took $30,000 out of your IRA to make FSA's payment, then you could potentially be eligible for up to $30,000 of a payment. If you took $60,000 out to meet all your obligations, but you only owed FSA 20, then they would look at $20,000. That's my understanding of it. Again, we're all learning as we go with this.
Brenna Finnegan (52:15):It's almost like a reimbursement type program.
Kurt Leber (52:17):It sounds like it, yes.
Brenna Finnegan (52:18):Well, that's good. I mean, who knows, especially what Libby said, these past couple years and the prices of things and inputs and all that kind of stuff is just changed everybody's way of thinking, I think a little bit.
Libby Wixtead (52:35):I think some young beginning farmers, if they just started out, that could have had a real impact on them of getting smacked with those input prices. Even maybe not even getting some of those inputs and going from A, B, C to E, F, whatever plan. It's like, you just have to have a whole alphabet of plans in the past couple years here. Well, Kurt, we thank you for being with us and we appreciate you being a guest and we've had some awesome conversations here on what FSA is and any farm loan programs that anybody would like to apply for, there's some good tidbits here, guys. Go back and remember, be good at record keeping, but like Kurt said, nobody got into farming for record keeping. It's not what you see out the farmers in the fields. But that'll do it for another episode of AgCredit Said It and be sure to subscribe to the show and follow us on all social media platforms.
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