Direct Ownership FSA Loans: Dangers

FSA loans can help you finance the purchase of farm and farm equipment at a lower interest rate than private loans. When you get a loan directly through the FSA, you are capitalizing on the organization's mission to assist the neediest farmers by providing financial assistance at a low cost. The FSA is not looking to profit from your loan like a private company, meaning you will get a better deal all around. However, just because the loan is inexpensive, it is not without its own unique dangers.

FSA and Government Restrictions

The first thing to understand when you are getting your loan through a government organization is you are giving the government the right to stick its nose into your business. This may not seem like a problem initially, but even small issues can become huge crises when your funds are controlled by a government organization. For example, if you want to take on an additional partner, change your crop, or take on more debt to expand your operations, you may not be able to do so based on your loan contract. Restrictions may also apply if you want to restructure the loan in the future. These loans have limits of $300,000, which means you can be paying them off for a decade or longer. It is likely your situation will change in those 10 years, and being locked into such a huge loan early on can become a burden.

Regulations & Requirements

When you are maintaining financing through the government, you will be subject to more regulation on the daily operation of your farm or ranch. All FSA agricultural loans and rural loans insist you are compliant with federal regulations. If you are operating a fairly small farm, you may not typically meet these requirements on your own property. However, you will have no choice once you accept the financing, and the requirements can be burdensome. You will also have to assure you are up to date will all of your tax requirements, or you could be subject to loss of your financing in addition to liens on your property. 

Default and Seizure

Anytime you take a loan, there is always a risk of default. A loan for a land purchase is typically secured against that land. This means you are placing your new farm or ranch in the hands of the FSA until you pay off your loan. You only truly own the property once you have fulfilled every requirements in your loan contract. If you default in the meantime, you will be subject to the loss of your farm or ranch. The FSA will give you a minimal amount of notice to remove your property and vacate the land. This can be devastating on many levels. First, you lose an asset you spend years building financially and physically. Also, you now have a default on your credit score which will prevent you from getting financing in the future.