What is the Farm Credit System (FCS) and What Can Farmers Do to Have the Best Chance of Being Approved for an FCS Loan or Lease?
FCS Overview:
The Farm Credit System (FCS) is a network of federally chartered, borrower-owned financial institutions that provide credit and financial services to U.S. farmers, ranchers, and rural communities. Established in 1916, the FCS is designed to support agriculture and rural development through a cooperative structure. Here’s a concise overview:
Structure:
Cooperatives: The FCS is made up of several cooperatives, including 4 direct-lending banks and 68 affiliated lending associations. Each association serves a specific geographic region and operates independently but under the umbrella of the FCS.
Governance: The system is owned and governed by its borrower-members, who have a say in the operation of the institutions.
Services Provided:
Loans: FCS provides a range of loan products, including short-term operating loans, long-term mortgage loans, and real estate loans. These are used for purchasing land, equipment, livestock, and other agricultural needs.
Leasing and Insurance: Some institutions within the FCS offer equipment leasing and insurance products tailored to the agricultural sector.
Financial Services: The system also offers financial management services, including advice and planning assistance.
Eligibility:
Borrowers: FCS loans are available to farmers, ranchers, and agricultural producers, as well as rural homeowners and small businesses involved in agriculture. Eligibility criteria vary by institution and loan type but generally require a sound business plan and ability to repay.
Funding:
Capital: The FCS is funded through a combination of borrower capital, loans from the Federal Farm Credit Banks Funding Corporation, and the issuance of securities in the capital markets.
Mission:
Support Agriculture: The primary mission of the FCS is to provide reliable and affordable credit to support the agricultural sector and rural communities, ensuring that farmers have access to the necessary financial resources to thrive.
The Farm Credit System plays a crucial role in the U.S. agricultural economy by offering financial products and services tailored to the needs of the agricultural community.
How to Get Approved for FCS Financing:
To ensure they meet the requirements and get approved for a Farm Credit System (FCS) loan or lease, a farmer should follow these key steps:
Understand FCS Loan and Lease Requirements:
Eligibility: Verify that you meet the eligibility criteria, which typically include being an agricultural producer, having a sound credit history, and demonstrating the ability to repay the loan or lease.
Type of Loan/Lease: Determine which type of loan or lease best suits your needs, such as operating loans, real estate loans, or equipment leases.
Prepare Comprehensive Documentation:
Business Plan: Develop a detailed business plan that outlines your farm’s operations, goals, financial projections, and repayment strategy.
Financial Statements: Gather current financial documents, including balance sheets, income statements, cash flow statements, and recent tax returns.
Legal Documents: Prepare any legal documentation related to your farm’s operations, such as land ownership records, lease agreements, and contracts.
Complete the Application Process:
Application Forms: Obtain and complete the necessary loan or lease application forms from the specific FCS institution. Each institution may have its own forms and application procedures.
Submit Documentation: Provide all required documentation along with your application. Ensure that all information is accurate and up-to-date.
Consult with an FCS Representative:
Pre-Application Meeting: Schedule a meeting with a loan officer or financial advisor at your local FCS institution. They can offer guidance on your application, help you understand the requirements, and suggest improvements.
Address Concerns: Discuss any potential issues or concerns with the representative and seek advice on how to strengthen your application.
Demonstrate Financial Viability:
Credit History: Maintain a strong credit history. Address any past credit issues and provide explanations if necessary.
Farm Management: Show evidence of effective farm management practices and a solid plan for using the loan or lease funds.
Follow Up:
Monitor Progress: Keep in touch with your FCS representative to track the status of your application. Be responsive to any additional information or documentation requests.
Review Terms: Carefully review the terms of the loan or lease agreement, including interest rates, repayment schedules, and any covenants or conditions.
The Following Table is How the FCS Scores a Farm’s Financial Health:
| Excellent | Good | Acceptable | Fair | Poor | |
|---|---|---|---|---|---|
| Debt to Asset Ratio | < 15% | 16-20% | 21-30% | 31-40% | > 41% |
| Current Ratio | > 2.5 | 1.75-2.50 | 1.25-1.75 | 1.00-1.25 | < 1.00 |
| Working Capital/Farm Operating Expense | > 75% | 55-75% | 35-55% | 15-35% | < 15% |
| Total Farm Income/Total Liabilities | > 85% | 70-85% | 55-70% | 40-55% | < 40% |
| Operating Expense Ratio | < 60% | 60-65% | 65-75% | 75-80% | > 80% |
| Credit Score | 800-850 | 740-799 | 670-739 | 580-669 | 300-579 |
Excellent and Good scores have the best chance of being approved for financing and may merit lower interest rates.
Acceptable, Fair, and Poor scores lower the chances of approval for financing and may merit higher interest rates.
By thoroughly preparing and working closely with FCS representatives, a farmer can increase their chances of securing the necessary financing or leasing arrangements to support their agricultural operations.
Photo by Cristina Anne Costello on Unsplash
