Direct Operating FSA Loans: Dangers

FSA loans for operating your farm are traditionally much less expensive than private loans for the same purpose. The low rate loans offer family-size farmers the opportunity to purchase equipment and other needs without paying out huge financing fees. You may also be interested in this type of loan because it is easier to secure if you have bad credit. While these are just a few of the benefits to securing your rural loan through the FSA, there are also a number of downsides to be aware of.

Long Application Process

Working with a government agency will always slow down the process for a loan. This is especially true with a direct loan from the FSA because the loan requires you have been rejected from other lenders. You will need to first attempt to secure the financing through alternative sources. Only if you are unable to meet the requirements of private lenders will you be eligible. Once you have been turned down through other sources, you will still have a lengthy application process with the FSA. You will have to provide sufficient documentation to meet the needs of the agency, which may include documentation regarding your ability to operate the farm. Even after you secure an FSA loan, you will still meet more delays before the funding makes its way to your bank account. If you need money immediately, asking for money from a government agency is not likely to fulfill your time requirements.

Increased Intervention

Aside from a lengthy application, you will be subject to increased regulation and intervention during the life of your loan. The FSA is a special purpose organization. It has been formed with a specific charter, and you must be in keeping with this charter in order for the FSA to continue funding your loan. Some requirements may stop you from seeking additional financing until you have paid off your FSA loan. Other requirements will place additional strain on your farm and income. These include insistence you are following government regulation on all of your techniques and maintenance. If you fail to meet a federal or state regulation on health, safety or environmental issues, you may lose your funding or be subject to garnishment of your funds.

Default

The biggest concern whenever you take out a large loan is the chance of default. Defaulting on an FSA loan is even more complicated than defaulting on a private loan. First, you will face normal credit issues as the default goes onto your financial reports. You will have a difficult time securing another loan after a default, and you may have to forfeit your assets in order to settle the issue. When you default on an FSA loan, you will no longer be eligible for another FSA loan. Beyond this, government loans cannot be consolidated with other private loans. If you need to consolidate your debt in order to avoid default, you will not be able to do this with your FSA loan.