On August 7, the U.S. Department of Agriculture released a new rule in the federal register, Enhancing Program Access and Delivery for Farm Loans. RAFI welcomes these changes and believes the new rule will result in reduced risk for borrowers, setting them up for success earlier and giving them better options if they do run into hard times.
“RAFI deeply appreciates the leadership of the USDA under Secretary Tom Vilsack and the Farm Service Agency (FSA) under Administrator Zach Ducheneaux, along with the support of the Biden-Harris Administration, for their commitment to supporting farmers through more flexible and accessible lending programs,” says Edna Rodriguez, Executive Director. “The recent updates to FSA’s Farm Loan Programs represent a significant step forward in providing farmers with the tools they need to succeed by removing barriers to credit access. We believe these improvements will make the FSA loan programs more equitable and inclusive, helping farms in crisis and supporting new farmers in launching viable enterprises.”
The new rule includes numerous provisions that ease collateral requirements, add more flexible loan payment options that will improve farm businesses’ sustainability, and give farmers more options if they encounter disaster or distress. “One of the biggest challenges facing a farmer in crisis is when all their assets are tied up in the loan security – it really limits their options for moving forward,” says Policy Co-Director Margaret Krome-Lukens. “This rule takes a big step forward by giving farmers more flexibility to plan their businesses and take advantage of opportunities they see, and it gives us more tools to work with farmers and the agency to make their business plans for stability and growth, not just getting by season to season.”
Krome-Lukens notes, “RAFI’s cooperative agreement with FSA includes helping farmers access FSA programs, as well as helping FSA improve its ability to serve farmers. In that role and using our decades of experience helping farmers navigate both credit and financial crises, we share what rules and regulations are making things more difficult for farmers and our ideas for improvements. This new rule clearly demonstrates a shared goal of helping farmers access credit that will help their farms thrive.”
Over the coming weeks and months, RAFI will continue to provide analysis and education to help farmers understand what the rule means for them. The rule goes into effect on September 25, 2024. A few highlights include:
- Reduced collateral requirements: FSA will reduce the amount required to be put up as loan collateral from 150% of the loan value to 125%, allowing farmers to leverage their assets to access other credit. Many borrowers will also be able to have assets released from that collateral as they pay their loan down, and in many cases, will not be required to put their homes up as security.
- Loan repayment terms to thrive, not just survive: The rule includes new provisions to ensure that as a loan is given and repayment plans and timelines are developed, those plans allow the farmer to develop sufficient working capital to help grow their business without debt servicing obligations that are unnecessarily high. Their business plans will also be able to include considerations like saving for retirement, education expenses, and emergencies.
- Better tools for hard times: The new rule lowers interest rates on deferred loan payments, simplifies the applications, and makes them available beyond just disaster situations. It requires less loan security and provides more protections for borrower’s assets when they need to restructure an FSA loan, and it adds “catastrophic medical expenses” to the list of reasons to receive loan servicing.
In RAFI’s financial crisis casework with farmers, seemingly small policy provisions can make the difference in a farmer’s ability to make it through their crisis and find their way back to financial stability. The changes included in this rule are significant and meaningful, creating more protections for FSA borrowers and more tools both for planning for success and for addressing financial crisis. The Enhancing Program Access and Delivery for Farm Loans rule is a win for farmers. RAFI appreciates USDA’s attention and efforts towards better loan access and delivery for farmers and looks forward to putting this rule into action to help farmers.