Many FSA officers will have never handled a loan to an LLC or partnership composed of unrelated and unmarried persons, and some may think it isn’t allowed. Entity applicants might be working with a loan officer who isn’t as familiar with these types of applications, while others will find well-versed loan officers. We can assure you that it is possible to secure an FSA FO as an entity applicant and that the FSA Loan Officers have the resources available to help guide you through the process.
One source we relied on heavily for developing this guide was the FSA Handbook: Direct Loan Making for State and County Offices: Short Reference, 3-FLP (Revision 2), USDA FSA. We don’t want you to read through this source yourself, so we created this guide! But, do know that FSA loan officers will have access to this Handbook and likely other policies that will help shape the application process.
Preparation is key to starting off on the right foot with your Farm Loan Officer. Use the checklists we created on the following few pages to help make sure the entity is set up correctly and all individual members have the documents they need to ensure a successful application.
A farm loan officer will want to review many of your business documents. You don’t have to create top-notch financial statements explaining your profit and loss, but do spend some time organizing these records so that they are readable by people who aren’t part of your business. Other required documentation are tax returns for the past three years, pay stubs if any entity owners have off-farm income, and business and personal credit card and bank statements. Also, if the business is currently leasing, bring copies of those agreements to the farm loan officer.
Analyzing Ownership Structure for Success with a FSA FO Loan for Unrelated Co-Owners of a Farm Business
Due to the FSA FO requirements, tough decisions might have to be made about who can be an owner in an entity being formed to apply for a FO loan. Use this checklist to consider the personal circumstances of each of your entity’s owners. If any checkbox is left blank, then you know there is an issue and the ownership structure will need to be reconsidered. If you are working with an individual that you would like to co-own the business with but that doesn’t meet some of these criteria, then alternative organizational structures will have to be explored.
Threshold Questions
All owners or potential owners must check ALL of the following boxes. If you need to refresh your understanding of any of these requirements, the related criterion is listed so you can refer back to the written guide.
- At least one of the following three things are true: The owner is (1) a beginning farmer, (2) has not had a FO loan outstanding in the last 10 years, or (3) has never received a direct FO loan.
- The owner has documentation that they are a U.S. citizen, U.S. non-citizen national, or a qualified “alien.” Criterion #1.
- Has no convictions for controlled substances. Criterion #2.
- Is 18 years of age or older. Criterion #3.
- Has the mental capacity to enter into a contract. Criterion #3.
- Is not delinquent on any federal debt (unless it is IRS debt!) Criterion #6.
- No outstanding judgments have been issued against the owner/potential owner in any US court. Criterion #7
- Has not been disqualified from federal crop insurance programs. Criterion #8.
Deeper Questions for Owners or Potential Owners
These questions require a bit more discussion. Owners will need to discuss each other’s history and qualifications for running a farm, determine who will participate in day-to-day management of the farm business, and who will be responsible for strategic decisions. All owners will need to divulge their credit history and how suited they are for a FSA loan.
- At least 50% of the owners or potential owners have the required managerial experience and can document it. Criterion #9.
- Each owner or potential owner possesses an acceptable credit history. Criterion #4.
- At least 50% of the owners will be responsible for the day-to-day operation of the farm and all strategic decisions. Criterion #11.