Understand the Risks Before Financing Your Farm


When you finance a farm with an FSA loan, you have certain responsibilities. In other words, there are certain risks you face if you violate the requirements of the loan. While the requirements are different from those involved in a residential loan, they are somewhat simple to follow as long as you are aware of them.

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A Legal Contract

First, and similar to a home loan, you sign a legal contract when you take out an FSA loan. You sign a promissory note that states that you will make your payments as required and pay the loan in full by the maturity date. Whether you sign the promissory note with one person or five people, everyone on it is liable for the debt.

You are legally responsible for the note until you pay the note in full and you receive a full release from the FSA. If you default on the debt and go through legal bankruptcy proceedings, you could also be released from the debt that way.

Making Your Payments

Again, like a home loan, you must make your payments on time. You are free to make prepayments at any time. However, if you sell land or equipment that you used your FSA loan to purchase, you are required to put the proceeds of the sale toward the loan.

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Making the extra payment from the proceeds of the equipment sale doesn’t eliminate your need to make your regularly scheduled payments, though. You must still stick to the payment schedule. The proceeds from the sale of land or equipment should decrease the loan balance accordingly, though.

If the FSA has to front money for you for any reason, such as unpaid property taxes, that money becomes part of your loan as well. The money they put up for you is then subject to interest, just like your principal balance is subject to.

Changes in Your Income

If your operations change and you no longer make the same amount of money you anticipated when you took out the loan, it’s your responsibility to let the FSA know. You are required to operate a farm in order to have the FSA loan. If you stop for any reason, you must get in touch with the FSA right away. This includes if you plan to lease your land and/or equipment. The FSA typically doesn’t allow you to rent out any of the loan’s collateral, but they may grant an exception in certain cases.

It’s Temporary Financing

FSA loans aren’t meant to be a long-term loan. They are typically fairly temporary. You should keep this in mind as you figure out your financing. Can you afford the loan and its required payments for the short term that is allowed? Do you have another method to refinance the debt?

FSA loans are meant to be a sort of ‘bridge’ until you can get traditional commercial financing. The FSA does keep track of your finances and income to determine when you might be eligible for another form of financing. If you do become eligible for another type of loan, they will require you to refinance the FSA debt to free up the money for another farmer.

The FSA program is a great way to get started as a farmer, but it’s not a long-term loan. Make sure that you are aware of your responsibilities before taking the loan on in order to avoid any defaults or violations of this federal loan.

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