FSA Guaranteed Loan Program
FSA guaranteed loans provide Kinderhook State Bank
with a guarantee
of up to 95 percent of the loss of principal and interest on a
loan. Farmers and ranchers apply to Kinderhook State Bank which then
arranges for the guarantee. The FSA guarantee program is designed
add stability to the
agricultural economy.
FSA guaranteed loans are for both Farm Ownership and
Operating purposes. Like the Direct Loan Program, a
percentage of Guaranteed Loan
funds is targeted to beginning farmers and ranchers and minority applicants.
Loan Purposes
Farm Ownership Loans
Guaranteed Farm Ownership (FO) Loans may be made to
purchase farmland, construct or repair buildings and other
fixtures, develop farmland to promote soil and water
conservation, or to restructure debt.
Operating Loans
Guaranteed Operating Loans (OL) may be used to 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 restructure debts
under certain conditions.
Maximum Loan Size
FSA can guarantee OLs or FO loans up to $852,000 (amount
adjusted annually based on inflation).
Borrower Eligibility
To qualify for an FSA Guarantee, a loan applicant must:
•
be a citizen of the United States
•
have an acceptable credit history.
•
have the legal capacity to incur the obligations of the
loan.
•
be unable to obtain a loan without a guarantee.
•
not have caused FSA
a loss by receiving debt forgiveness on more than 3 occasions.
•
be the owner or tenant operator of a family farm after
the loan is closed. For an OL, the producer must be
the operator of a family farm after the loan is closed.
For an FO Loan, the producer needs to also own the
farm.
•
not be delinquent on any Federal debt.
Entities (corporations, cooperatives, joint operations,
partnerships, trusts, and limited liability companies) and their
members/stockholders must meet these same eligibility requirements.
The entity must also be authorized
to operate a farm or ranch in the State where the land is
located.
What Other Criteria Does FSA Consider?
In addition to meeting the eligibility criteria, the loan
applicant must have a satisfactory credit history,
demonstrate repayment ability, and provide sufficient
security for the loan.
If the Producer Qualifies, What Next?
The following actions are usually taken as part of the
application process:
1.
The producer and Kinderhook State Bank complete the
guaranteed application and submit it to FSA.
2.
FSA reviews the application for eligibility,
repayment ability, security, and compliance with
other regulations.
3.
FSA approves and obligates the loan.
4.
Kinderhook State Bank receives a conditional commitment indicating
funds have been set aside, and the loan may be closed.
5.
Kinderhook State
Bank closes the loan and advances funds to the producer.
6.
FSA issues the guarantee.
Loan Terms and
Interest Rates
Repayment terms vary according to the type of loan made,
the collateral securing the loan, and the producer's ability to
repay. OLs are normally repaid within 7 years and FO loans
cannot exceed 40 years.
The Guaranteed loan interest rate and payment terms are
negotiated between Kinderhook State Bank and the borrower. Interest
rates on these loans may not exceed the rate charged the
lender's average farm customer. In addition, under the
Interest Assistance Program, FSA will subsidize 4 percent of
the interest rate on loans to qualifying borrowers.
Security
Each loan must be adequately secured. Collateral for OLs
consists of a first lien on crops to be produced and on livestock
and equipment purchased or refinanced with loan funds. A lien may be
taken on certain other chattel and real estate property, and an
assignment usually will be taken on
income such as that from a dairy enterprise. Collateral for
FO loans consists of real estate only or a combination of real
estate and chattels. FSA staff determine whether the
collateral proposed by the Kinderhook State Bank is adequate.
Is this the Lender's Loan or an FSA Loan?
Guaranteed loans are the property and responsibility of Kinderhook
State Bank Kinderhook State Bank 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 Kinderhook State Bank
suffers a loss, FSA will reimburse the Kinderhook State Bank with
Federal funds according to the terms and conditions specified in the
guarantee.
What Happens if the Loan Becomes Delinquent or the Borrower
Defaults?
Kinderhook State Bank 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.
Kinderhook State Bank makes every attempt to work with the borrower
to
resolve any problems.
Percent of Guarantee
For most loans, the maximum guarantee is 90 percent. The
guarantee percentage will be determined by FSA based on
the risk involved in the loan. Kinderhook State Bank may receive a
95
percent guarantee when:
1. The purpose of the loan is to refinance direct
FSA farm credit program debt. If only a portion
of the loan is for this purpose, a weighted
percentage of guarantees will be used.
2. The loan is made to a beginning farmer to
participate in the beginning farmer down payment loan program or a
qualifying State
beginning farmer program.
Guarantee Fees
For most loans, FSA charges a guarantee fee of 1 percent of
the guaranteed portion of the loan. This fee may be passed on to the
borrower. The guarantee fee is waived for:
•
Interest assistance loans
•
Loans where more than 50% of the loan funds are
used to pay off direct FSA loan debt
•
Loans in conjunction with a Down-payment Farm
Ownership Loan program for beginning farmers or a
qualifying state beginning farmer program. This fee
waiver does not extend to all beginning farmers.
Secondary Market
The secondary market for USDA guaranteed loans is a key feature of
the guaranteed lending program. Kinderhook State Bank may
resell the guaranteed portion of the loan to an interested
party. The interested party then becomes the
Holder of the
loan, but Kinderhook State Bank must retain the loan servicing
responsibilities. Investors who are looking for safe investments
with a reasonable return are attracted to these
loans because of the Government's full Faith and Credit guarantee
against default. The existence of the secondary
market makes guaranteed loan notes more liquid.
Advantages of Using the Secondary Market.
The existence of the secondary market is a strong
inducement for lenders to become involved in guaranteed lending.
Selling the guaranteed portion of the loan to other investors offers
a number of advantages, including:
•
Reduced Interest Rate Risk.
Lenders can transfer
risk of interest rate increases on the guaranteed portion of a fixed
rate loan.
•
Increased
Community Investing.
Selling the loan on the
secondary market frees the funds for additional
lending or investing activity.
•
Enhanced Loan Terms and Rates.
The
Secondary Market enhances Kinderhook State Bank's loan products
terms and rates.
