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USDA Acts to Ease Credit Crunch for Guaranteed Farm Ownership Loans

Agriculture Secretary Tom Vilsack has notified Congress that he plans to tap a $500 million discretionary fund to cover a projected shortfall in demand for guaranteed farm ownership loans for the fiscal year ending Sept. 30, according to USDA's Farm Service Agency, which administers the loan program.

Low commodity prices and a dramatic decline in farm income over the past two years have caused banks to become more cautious in their lending practices, hence there is a greater demand for USDA guaranteed loans. The department's Farm Service Agency has just about run out of the $2 billion Congress approved for the guaranteed loan program, three months before the end of the fiscal year. FSA is also looking at a projected shortfall in federally assisted farm operating loans.

“USDA is entering a brief period where there is a gap in funding earlier than normal,” said FSA spokesman Kent Politsch, who added that the situation is not unusual.

“People forget this happens frequently where one of the funds, or all of funds, start to dwindle as they get closer to the end of fiscal year,” he said. “We don't tell farmers we're out of money and they can't come to us anymore. We tell them the opposite, to continue to apply for credit. In many case the producer is put on waiting list and when appropriates happen, they are the first to get funds.”

In early June, eight national farm and financial organizations asked Congress to increase funding for operating loans for the current fiscal year in the FY 2017 agricultural appropriations bill.

The groups, including the National Sustainable Agriculture Coalition and the American Bankers Association and the National Farmers Union, said an additional $16.5 million in the spending bill for 2017 would make available additional $300 million in direct FSA operating loans and $350 million in FSA guarantees of private sector commercial loans. These amounts would allow USDA to cover the estimated shortfall of available loan dollars. The legislation currently includes the USDA-requested program level of $1.46 billion for direct operating loans, and $1.432 billion for guaranteed operating loans.

Ferd Hoefner, with NSAC, says the groups have not heard back from the House and Senate appropriators directly, but he said they have received “positive” indications from staffers on the Appropriations committees.

In general, farm ownership funds may be used to purchase or enlarge a farm, construct new farm buildings and/or improve structures, pay closing costs, and promote soil and water conservation and protection.

Politsch stressed that FSA is still in the business of making and guaranteeing loans, in his words, “to promote, build and sustain family farms and ranches in support of driving the agriculture economy.

“We realize the importance of a safety net to sustain families in good times and bad,” he said. “Our farm loan programs are there to ensure access to credit to more than 43,000 farmers and ranchers annually.  and that's to cover operating costs and to purchase or refinance farms.”

He said the agency services or guarantees 113,000 borrowers who have made loans through FSA totaling $23 billion dollars.

This story was written by Daniel Enoch for Agri-Pulse Communications, Inc.

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