FSA Conservation Loan Program offers assistance to any ag operation
A new loan program released by USDA’s Farm Service Agency (FSA) last fall is unique from anything the agency has previously offered, as it doesn’t require a producer be denied at a commercial bank for qualification.
The Conservation Loan (CL) Program is aimed at helping producers pay for projects that enhance conservation on their land, and it does require that the Natural Resources Conservation Service (NRCS) approve the proposed project.
“Going back to the agency’s beginning in the 1930s, this is the first time we’ve been able to make a loan without that producer first having to go get denied at a bank,” says FSA Farm Loan Programs Marketing Coordinator Brian Harrell. “That’s strictly because it’s for conservation purposes. For those conservation practices that are approved, we can make the loan whether they can get a commercial loan or not, and that’s a big piece of this new program.”
“The basic intent of the program is to provide financing to farmers and ranchers for the promotion of conservation practices,” adds Harrell, explaining the partnership with their sister agency.
The new loan rate effective March 1 is 4.875 percent, and loans can be made up to a 20-year term if they’re secured by real estate. The maximum loan amount under the direct loan program is $300,000, and Harrell says the agency can also guarantee conservation loans from a bank up to a maximum of $1,119,000.
“They have streamlined the application. If you meet the qualifications, are current on all payments to all credits, have a debt to asset ratio of 40 to 60 percent and net worth three times what you request on the loan, I’d make a loan,” says FSA Farm Loan Officer Bill Morrison, who serves Hot Springs, Washakie and the southern portion of Big Horn County. “You don’t have to have anything else if you meet those qualifications.”
According to the loan program fact sheet, “For those applicants with a strong financial position, paperwork requirements can be significantly reduced. The streamlined application process reduces paperwork for applicants, lenders and FSA staff by eliminating the requirement to provide a cash flow statement and its supplementary documentation. To submit a streamlined CL application, the applicant must: be cur- rent on payments to all creditors; have a debt-to-asset ratio of 40 percent or less; have a minimum Fair Isaac Corporation (FICO) score of 700; have a net worth of at least three times the loan amount; and not have received FSA primary loan servicing within the past five years.”
Harrell says he thinks FSA decided to shift gears with the eligibility on this new loan program because of the mutual benefit that’s derived from promoting conservation practices.
“We’ve always been in a position where we don’t want to compete with commercial lenders,” Harrell says. “We’ve always required applicants to first try to obtain financing through commercial sources, but I think they waived that requirement on this loan because of the benefit derived for everyone through conservation of water, soil, etc.”
“We used to be the lender of last resort, and now we’re the lender of first opportunity,” says Morrison.
Because the program is still relatively new, Harrell says he has had inquiries but no official applications have been received.
“There are a few people in my area I’m working with to discuss what they want to do, because producers first need to work with NRCS to get their conservation practice approved,” he says. “It’s a little bit of a two-step process – getting the conservation practice or measure approved, and then coming to us for the financing.”
Harrell says in his area around Riverton he would expect to see producers apply for the conservation loan to help with financing a center pivot irrigation system or other strategies for water conservation.
“Producers can get considerable cost sharing for center pivots with the NRCS office – even up to 60 or 70 percent cost share – and we could finance the other 30 or 40 percent with favorable rates and terms because the project is for conservation,” he notes.
Of conservation practices that might be implemented, the loan fact sheet suggests, “Conservation Loan funds can be used to implement a conservation practice approved by the NRCS, such as to reducing soil erosion, improving water quality and promoting sustainable and organic agricultural practices. This would include installation of conservation structures; establishment of forest cover; installation of water conservation measures; establishment or improvement of permanent pastures; transitioning to organic production; manure management, including manure digestion systems; adaptation of other emerging or existing conservation practices, techniques or technologies.”
“It’s pretty much open to anything approved by NRCS, and that will vary from region to region, state to state and even within our state,” says Harrell.
“If you’re doing an EQIP project – and some are 75 percent cost share – I could finance 100 percent, and once the project’s complete the cost share would pay off 75 percent and you’d have a loan on the remaining 25 percent,” says Morrison.
“I’m pretty sure a large percentage of producers are unaware we can make this loan to them, even though they may be larger and stronger financially than the clients we traditionally work with,” says Harrell.
“This is a program that’s exciting for us because of the expanded eligibility, and that it can be beneficial across the board,” he adds.