New Policy to Simplify USDA Farm Loan Rates

Setting the maximum rate lenders may charge will ensure more certainty, better compliance, USDA says

Published on: Mar 4, 2013

The USDA Friday announced an interim rule that sets thresholds on the interest rates charged by lenders on guaranteed farm ownership and operating loans. The changes will amend guidelines for interest rates and establish new policies that set the maximum interest rate lenders may charge to borrowers.

"By providing clear thresholds on interest rates for federally-guaranteed farm loans, USDA is ensuring greater certainty to producers, making compliance easier for our lenders and ensuring greater benefits for all farmers and ranchers," Agriculture Secretary Tom Vilsack said.

USDA's Farm Service Agency guaranteed loans reduce the risk of loss to lenders (banks, farm credit institutions and credit unions) by guaranteeing up to 95% of the loss of principal and interest on a loan. USDA says by reducing a lender's risk, borrowers benefit from a lower rate.

Setting the maximum rate lenders may charge will ensure more certainty, better compliance, USDA says
Setting the maximum rate lenders may charge will ensure more certainty, better compliance, USDA says

Lenders have expressed a desire to see greater clarity in FSA's interest rate policy. At the same time, FSA seeks greater consistency with industry standards and other government agencies that administer similar programs. The improvements in the new rule will make credit pricing procedures easier to follow and improve compliance for lenders.

At this time, FSA is also requesting additional comments on the interim policies in the rule, aiming to assure that the benchmark rates required of lenders do not prevent farmers and ranchers from obtaining guaranteed loans. USDA is seeking comments through June 3, 2013.

This interim rule is part of USDA's work to expand credit opportunities for America's farmers and ranchers. In January, USDA announced a new microloan program to help small and family operations, and beginning and socially disadvantaged farmers secure loans under $35,000.

The new microloan program is aimed at bolstering the progress of producers through their start-up years by providing needed resources and helping to increase equity so that farmers may eventually graduate to commercial credit and expand their operations. The interest rate for microloans changes monthly and is currently 1.25%.

While USDA continues to introduce new products that are more responsive to the credit needs of its diverse customer base, the Department continues to expand its traditional farms loans. Since 2009 USDA has made a record amount of farm loans—more than 134,000 loans totaling nearly $18 billion. USDA has increased the number of loans to beginning farmers and ranchers from 11,000 loans in 2008 to 15,000 loans in 2011. More than 40% of USDA's farm loans now go to beginning farmers. In addition, USDA has increased its lending to socially-disadvantaged producers by nearly 50% since 2008.