Dive Brief:
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The U.S. Department of Agriculture on Wednesday announced a major overhaul of its loan programs to provide farmers with more repayment flexibility and expanded access to credit.
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As part of the changes, USDA’s Farm Service Agency will offer smaller interest-only payments, or longer loan terms that provide more time to pay, according to a release. Additionally, FSA is lowering collateral requirements and creating a new program for distressed borrowers allowing them to defer loan installments at a reduced interest rate.
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The updates, part of a larger effort to streamline and improve lending services, represent “some of the most significant changes” to farm loan programs in the last 40 years, according to FSA Administrator Zach Ducheneaux.
Dive Insight:
Many farmers rely on USDA’s loan programs to help purchase land, livestock, equipment and even adopt climate-smart agricultural practices. These loans can be crucial for beginning farmers who may not meet loan qualifications from a commercial lender.
However, extensive lending requirements have made it difficult for farmers to either access credit or grow operations while keeping up with payments. FSA’s direct loan program, for example, requires applicants to pledge their primary residence as additional collateral for a new loan.
Ducheneaux said changes to the loan program — which includes the removal of that requirement — will allow farmers to keep more of their profits and maintain financial resilience particularly as agricultural income plummets.
“Providing borrowers the financial freedom to increase profits, save for long-term needs and make strategic investments is the best way to ensure the nation’s farmers and ranchers can build financial equity and resilience,” Ducheneaux said in a statement.
Curt Covington, senior director of managed accounts at financial services provider AgAmerica, said the changes offer options already available to farmers through alternative lenders, including flexible payment terms or the ability to leverage equity.
“While these features aren't entirely new, they provide farmers with more freedom through optionality, particularly new and distressed farmers, which is a plus given the contractionary cycle the farm community is currently experiencing,” Covington said in an email to Agriculture Dive.
Correction: In a previous version of this article, Curt Covington’s title was misidentified. He is the senior director of managed accounts at AgAmerica.
