FSA Loans for Farm Storage Facilities: Disadvantages

The Farm Service Agency provides low-interest FSA loans to producers in need through the federal government. These agricultural loans are typically a better deal financially than a private rural loan or small business loan opportunity. One specific loan program helps producers pay to either build or purchase a storage facility. The low interest rate and high limits make these loans both attractive and competitive, but there are several disadvantages for opting for the federal route.

Extensive Specific Criteria

One reason to shy away from a federal loan is the long list of requirements on the loan. First, you will be evaluated on the specific type of commodity you are looking to store or handle. Only certain types of commodities will qualify, and if you are found to be storing something else, your loan may be cancelled. Similarly, there are requirements for the type of structures that meet requirements. Used or portable structures are rarely supported through the farm storage loan program. 

The federal government will also place personal requirements on you as a borrower. Financial requirements may be lower than they are with private lenders. However, the government will not provide you with a loan if you have a substance abuse arrest on record or owe any money back taxes. This conflict of interest in using the government as your lender can lead to issues with your loan if you are arrested or have a tax lien in the future.

Restricted to Personal Usage

FSA loans for farm storage facilities are not small business loans. You can only use the facilities for storage of commodities for personal, not commercial use. Again, this can lead to issues with your loan down the line. For example, imagine you over-produce one year and look to sell your surplus. If you do this, you may be in violation of your loan contract. This means your loan could be cancelled or called in far before you anticipated paying off the balance.

High Vigilance on Compliance Issues

When you use the government for financing, you can expect to find more government vigilance over your farm than ever before. You will have to show you meet all compliance requirements even before you can obtain the loan. The federal government, as a lender, may ask for regular inspections or updates on your compliance with certain issues, including insurance and safety requirements. Ultimately, if you want to maintain more independence with your farm, you will be better served through a private lender than by using the government. The higher expense may be worth the reduced hassle.