Distressed borrowers will be able to defer one annual loan installment at a reduced interest rate and take advantage of a simplified application process for Farm Service Agency loans, under new regulations released by USDA Wednesday.
FSA also is offering a lower collateral requirement.
“We're fundamentally changing the way we handle farm loans with this rule,” FSA Administrator Zach Ducheneaux told Agri-Pulse.
Under the new Distressed Borrower Set-Aside program that was included in a rule released Wednesday, distressed and delinquent borrowers can benefit from low-interest installments without having had to suffer a natural disaster. They also can defer up to one annual loan installment to ease financial stress at a rate of 0.125%.
The rule says the changes are intended to assist “distressed borrowers whose operations are at financial risk and face the possibility of bankruptcy, liquidation, or foreclosure.”
Collateral requirements for guaranteed loans also have been adjusted under the rule. FSA is cutting the current requirement of up to 150% of the loan’s value in security and assets to 125%, allowing borrowers to leverage more of their equity.
Ducheneaux says these changes are based on decades of feedback from producers and lenders, aimed at removing barriers that hinder credit access, particularly for those in greatest need.
“Our data shows that having a maximum of 125% security interest based on the loan value is sufficient to protect our interests and those of taxpayers,” Ducheneaux said.
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Producers can choose to make interest-only payments in the first year, with flexible repayment terms designed to increase profitability and build working capital reserves and savings.
"An interest-only installment the first year of a loan can result in a substantial boost to reserves and savings, enabling the borrower to make strategic investments to grow their operation without having to take on additional debt," the rule says. "For borrowers who elect the first-year interest-only installment plan, principal reduction will typically begin after the sale of crops or livestock produced during the second year of the loan."
At the end of the year, rather than repaying the money immediately, it will stay invested and earn interest, allowing the funds to be used for the next year's operation, Ducheneaux said.
FSA also has simplified the direct loan application process by reducing the paperwork from 29 to 13 pages and has posted step-by-step guides, loan applications and repayment features online.
Last week, the Biden administration announced $2 billion in payments under the Inflation Reduction Act's financial assistance program to address discrimination faced by farm loan applicants.
In a statement on X, American Farm Bureau Federation President Zippy Duvall said USDA’s loan changes would “provide much-needed flexibility, and hopefully, can ease some of the significant stress for farm families.”
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