Emergency FSA Loans: Disadvantages

A natural disaster can devastate a farm. If you were not prepared, or did not have crop insurance, you can face financial ruin, if nothing is done. The great thing about the FSA is that they will step in and offer you an emergency FSA loan if you are in a designated disaster area. While this can be helpful, there are certain disadvantages as well. Here are a few things to consider before you agree to the loan.

Getting into Debt

While it is nice for them to offer you money, this is not a grant or some other "free money" program. You will have to pay this money back. If your farm is not doing well, examine closely how you will afford the payments on the new loan. Many of these loans are over 30 or 40 year repayment periods. Think about whether your farm will be in business in 40 years. If not, consider about the value of the land and if that will be sufficient to pay off the new debt. Accumulating a large amount of debt is not desirable for anyone. When you are in debt to the government, the debt will follow you around.

Government Intervention

This loan program requires that you agree upon a business plan with the government. This means that they will have a big say in how you run your farm and even periodically check up on you to make sure you are doing it. When you obtain agricultural loans, you may not want the lender telling you how to do things. On top of that, they will require you to attend a financial management program designed at helping you manage your money better. Anytime another party is involved in the operation of your business, it takes away a little bit of your freedom.

Collateral requirement

Some small business loans do not require any type of collateral to get started. An emergency FSA loan requires collateral for every dollar that it lends you. Therefore, you will have to tie in the farm, your house, your equipment, and anything else that you own to get the money you need. If you were out of debt, now all of your possessions will be tied up in the loan. If your farm does not work out, you will lose everything you own. Losing everything you have to the government is not a desirable position to be in under any circumstances. Make sure that you definitely need the loan before you tie up everything you have in an emergency FSA loan.