FSA Loans for Commodity Marketing Assistance: Dangers

FSA loans are typically a great ally for farmers and ranchers across the country. The FSA offers a number of programs that are designed to assist in farming and the sale of agricultural products. The FSA offers loans for commodity marketing assistance as one of these programs. The program is designed to help farmers market their products and stabilize their farm income. While it is a good program, there are some dangers associated with it. Here are a few things to watch out for when getting an FSA loan for commodiy marketing assistance.

Ineffective Marketing

Taking out a loan for your farm's marketing costs sounds like a great idea in theory. However, what if the marketing does not work? Marketing agencies and advisers make mistakes every single day. Many of the ads are ineffective and do not convey a good message to the consumers. If you take out a loan for this type of marketing, you are at a big risk. You might not sell enough product to live on, let alone pay back the marketing loan to the FSA.

Non-Flexible Terms

Most of the time, when dealing with FSA loans for commodity marketing assistance, the repayment term is standard. You will receive the money upfront and then you will have to repay it within ten months. You don't make monthly payments on the loan. You will only make one payment to repay the entire principal of the loan with interest. You can pay it off early, but what if you need more time? Ten months is not a very long term for repayment of a loan of that size. If you run into trouble selling your crops, you might need more time than the designated time for repayment.

Default

The biggest danger of FSA loans for commodity marketing assistance is the risk of default. Defaulting on a loan that is essentially funded by the government is not good for your credit. The loans are technically non-recourse loans because the crops themselves are what guarantee the loan. However, if you have sold part of your crops, you might not have enough to satisfy the debt. You might have to deliver your entire crop to them as repayment of the loan and still come up short. In this case, your credit will take a major hit and it will affect your ability to take out future loans.