The final rule for the Farm Service Agency’s micro-loan program (ML) is now available on the Federal Register. We’ve taken a look and are pleased with the outcome. NYFC has been advocating for credit opportunities for small and beginning farmers for some time. We got policy makers thinking about this in 2011 and then proposed it in the Beginning Farmer and Rancher Opportunity Act. NYFC thanks the Farm Service Agency (FSA) for making this important change!
The final rule makes a few changes to the proposed rule released in May 2012 in response to submitted comments by organizations (such as NYFC and the National Sustainable Agriculture Coalition, NSAC), individuals, and FSA employees. Normally a 30-day delay between publication and effective date is applied. But the FSA believes for ML to meet the needs of farmers this season, it is necessary for it to be effective immediately!
The ML application process operates within the existing Operating Loan (OL) program framework but is simplified to reflect the smaller loan amounts and unique needs of small farmers. The final rule streamlines the application process, modifies security provisions, provides flexibility in meeting the management experience requirement, and updates the apprenticeship option:
1. Farm Assessment Requirements for ML applicants are substantially reduced
The assessment for an OL evaluates farm organization and key staff qualifications, type of farming operation, goals for the farm, adequacy of real estate and chattel property to conduct the farming operation, historical performance, farm operating plan, loan evaluation, supervisory plan, and training plan. The assessment for an ML applicant will be simplified and in the form of a narrative that will address the type of operation, assistance needed, goals of the operation, marketing plan, supervisory plan, financial viability of the plan, and training plan. Note: chattel property: items of movable personal property, such as equipment, livestock, etc.
We are thrilled the FSA is not requiring an itemized cash flow budget for ML applicants. For diverse vegetable growers, developing cash flows for each crop is tedious and not a representative measurement of success. To reduce undue burden, the FSA believes that “For applicants new to FSA who may produce non-traditional crops or with production practices where yield per acre may be less important, other factors, such as the production capacity, the consistency of income and expenses, and the timely harvest and selling of produce, may be more appropriate measurements to use in establishing actual productivity and projected plans.”
Reporting past yields will also not be necessary. Applicants can provide other forms of documentation such as operator’s sales receipts, financial statements, contracts, and tax returns. This benefits beginning farmers especially, who may not have operated a farm in the previous year.
2. ML’s will allow for flexibility in meeting the managerial ability requirement
The proposed rule allowed applicants to meet the managerial eligibility requirement though the traditional means (traditional education and farm management experience) OR experience managing their own farm through a self-directed apprenticeship OR past association with an agriculture related organization.
Comments to the proposed rule appreciated this flexibility but argued applicants should have at least one-full season of on-farm experience, not solely an association with an agricultural organization. The FSA agrees applicants should have at least one-year on farm experience and the final rule, therefore, “adjusts the proposed alternatives to require sufficient prior experience working on a farm or small business management experience combined with participation in a self-directed apprenticeship.”
NYFC recognized confusion between an apprenticeship and mentorship in the proposed rule that persists in the final rule. An apprenticeship generally runs for one season and is essentially farm labor with added training. A mentorship means an established, formal relationship between an individual who receives applied guidance and input from another individual with the skills and knowledge pertinent to the successful operation. Therefore, the FSA should use the term “self-directed mentorship.”
The FSA wants to ensure that applicants who have only had farm labor positions available to them are able to apply for an ML. A self-directed mentorship will allow applicants an alternative way to gain farm management experience for one season (“by seeking, receiving and applying guidance on how to manage their own start-up farm operation.”) Mentors will not be evaluated in the application process, to avoid burden on both applicant and mentor.
3. Manageable Security Requirements
The proposed rule suggested that MLs must be secured by collateral worth at least 100% of the loan amount to prevent barriers to meeting loan security requirements. In the final rules, FSA maintains that a security of 100% should always be sufficient. The requirement for additional security up to 150%, when available, will be limited to MLs for annual operating costs.
In addition, a lien on real estate (the right of the FSA to possess/sell real estate if loan is not repaid) is not required unless the value of farm products (equipment, livestock, other assets) is not at least equal to 100%.
NYFC commented that to ensure local field offices serve growers with diversified, organic and direct market farm operations, loan officers should be given special training in new farm business models. FSA maintains that in order to ensure a successful implementation of the program, local offices will be provided training when the program is introduced, and further training will be provided on a periodic basis. We hope this will training will allow state offices to be helpful resources for beginning farmers. We believe it would be tremendously helpful to have a state specialist on Community Supportive Agriculture.
5. Making sure the ML meets young farmers needs
NYFC and NSAC believe FSA should be required to track and publish information on microloan borrower participation to identify whether this program meets their credit needs. We urge the FSA to collect information on the type of operation, gross sales, years of experience, etc. to determine who is using the program and how to better meet borrowers needs. In response to our comment, the FSA reports that it is implementing changes into the system so that MLs can be evaluated separately from OLs. State offices will also compile the prices and yields of agricultural commodities, data on non-traditional and direct sales, and organic operations and make them available to the Service Center staff. We hope this information will be used to evaluate the ML program to best meet small and beginning farmers’ needs.