EMERGENCY LOANS

1

EMERGENCY LOANS (EM)

2

FSA provides emergency loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters, or quarantine.

Emergency Loan Regulations can be found in Handbook 3-FLP, Part 10.

EM Overview

Emergency loans may be made to farmers and ranchers who own or operate land located in a county declared:1) a Presidential major disaster,2) a USDA Secretarial disaster designation, now with Fast Track3) a FSA Administrator's Physical Loss Notification (APLN) , for physical losses only,4) a Quarantine designation requested from the Deputy Administrator for Farm Programs by the SED.

3

Types of Losses

Physical Losses Real estate physical loss Chattel physical loss

Equipment and stored crops• Livestock losses and Livestock products are always

considered to be physical lossesProduction Losses

Commodity losses Growing crops resulting from a disaster

4

ScenarioA flood washed Farmer Joe’s barn which was located in a low lying area of the farm. Once rebuilt at a site out of the flood area, Farmer Joe plans to use the barn to store equipment in the winter but will use the barn for parties and events during the summer. Can Farmer Joe get an EM to rebuild his barn.

5

Uses of EM Loan Funds

Real Estate Physical Losses may only be used to repair or replace essential property

damaged or destroyed as a result of a disaster as follows:• real estate purchases may be authorized if certain

requirements are met• establishment of a new site for farm dwelling and service

buildings if essential to farming operation • replace land from the farm if necessary to be effective

So the answer is.........

6

AnswerIf Joe intends to use the rebuilt barn only for parties and events he can not obtain an EM loan. If however he intends to use the barn for storage of his farm equipment or other farm-related purpose (essential to farm operation) then he would be eligible for an EM loan.

7

Scenario

Farmer Sandra planted corn for grain at the beginning of this year. However, she decides to chop her corn for silage because of the poor quality and lack of grain.

Can Farmer Sandra get a loss on her corn for grain or does the fact that she chopped it as silage represent a substitute crop?

8

Uses of EM Loan Funds

In the case of crops planted for grain and later harvested at its best/only use (typically corn chopped for use as silage) these changes will not be considered a substitute crop or management decision that prevents the applicant from being eligible for EM loan assistance. In these cases a salvage value must be determined for the harvested crop and deducted from the EM loan for lost production of the primary crop.

So, can EM loan funds be used to help Sandra.....?

9

AnswerBecause of her losses to the primary crop (corn ) planted, we would be able to make a loan for the losses to that crop minus the harvested salvage value (silage) and any insurance paid on the primary crop.

10

ScenarioFarmer Dan has cows and due to lack of feed, and no way to purchase feed in his area, he decides to liquidate his cow herd. Can Farmer Dan receive an EM loan for those cows and calves sold.

11

Uses of EM Loan Funds

In the case of cows liquidated, during or 60 days prior to a designated drought, and feed is not available or is not cost effective , FSA will not consider this a management decision. Therefore, EM loans would be available to those producers, for losses for both cows and calves.

Will we be able to help Farmer Dan with his cattle losses? Let’s find out..........

12

AnswerFarmer Dan can get an EM loan to cover his losses. Loan funds from calves (normal income security)can be used for any authorized operating purpose, however, funds from his cows (basic security) must be used to replace cows. Replacement cost minus actual value when sold will determine EM loan amount.

13

ELIGIBILITY

Owner-Operator Continue FarmingTimely Loan ApplicationAvailability of Credit ElsewhereQualifying LossesInsurance

14

ELIGIBILITY Owner/operator

For real estate physical losses applicant must be the owner operator or tenant operator at the time of the disaster

15

ELIGIBILITY

For chattel physical losses and production losses applicant must have been the operator of the farm and: must have an ownership interest in the

chattel who operate under a production

contract where they do not own the livestock or commodity is not eligible

livestock and commodities the applicant did own would be eligible losses

16

Owner/operator

ELIGIBILITY Continue Farming

Applicant must demonstrate the intent to continue the farming operation after the disaster

Timely Loan Application Applicant has 8 months from the time the disaster is

declared to turn in an application

17

ELIGIBILITY Availability of Credit

Elsewhere for loans in excess of

$300,000, two written letters of declination are needed

for loans of $300,000 or less, one written letter of declination is acceptable

for loans of $100,000 or less, the written letter of declination may be waived

18

ELIGIBILITY Qualifying Losses

for physical loss loans, applicant must have suffered disaster-related damage to chattel, real estate, household contents, harvested or stored crops, or to perennial crops.

for production loss loans, applicant must have a disaster year yield at least 30 percent below normal year yield.

19

ELIGIBILITY Insurance

EM loan funds may not be used for physical loss purposes unless:

the physical property was covered by general hazard insurance at the time of the disaster, and the level of coverage must have been the tax or cost depreciated value, whichever is less.

the loan is to a poultry farmer to cover the loss of a chicken house that did not have hazard insurance at the time of the loss and the applicant:

had applied for but was unable to obtain the insurance, uses the loan to rebuild in accordance with standards in effect at the

time the application is submitted, Obtains hazard insurance at full market value for the life of the loan, meets all other requirements for the loan.

20

EM LOAN FUNDS

Limitationsthe maximum loan amount for an EM loan is $500,000.

However, bundling different types of loans together could increase the amount of funds available to a borrower who needs more than the EM limitation allows.

EM loan funds may not exceed the lesser of :the amount of credit necessary to restore the farming operation

to its pre-disaster conditionfor a physical loss loan, the total eligible losses caused by the

disasterfor a production loss loan, 100 percent of the total actual

production loss 21

Calculating Losses Production Losses

Only crops are considered a production loss The applicant will use form FSA-2309 to report all yields and

acreage information, as well as any physical losses FSA will use the automated form FSA-2311, found in the Farm

Business Plan (FBP), to determine the applicant’s actual production, physical losses, or both.

Losses to pasture and rangeland are calculated two ways, extra feed cost and the new fast track feed purchase.

Quality losses are determined by comparing the average market price for the commodity at the grade the applicant would have normally sold the product, with the average price of the grade at actual sale.

Benchmark commodity prices will be established by the SED each year. 22

Calculating Losses Normal Production Yield is calculated as indicated:

23

IF an applicant…… THEN….

Had crop insurance in the disaster year, or the crops are covered under NAP and the Risk Management Crop Insurance Report or CCC-452 lists

APH

APH will be used as the normal year yield for the entire commodity,

regardless of whether or not the entire crop is insured.

Did not insure its crops or had individual commodities that were not

insured

The applicant’s actual reliable records for the 3 years immediately

before the disaster year will be averaged to determine the normal

year yield.

Does not have APH and their own reliable records for any or all of the 3

years are not available

The applicant’s yield reported to FSA for receiving FP payments will be

used in each or any of the years that these records are not available.

Does not have APH, reliable records, or has not reported yields to FSA for

any or all 3 years

County or State averages will be used in any or all of the years these

records are not available.

Scenario

Farmer Anne owns an nursery where she grows trees and shrubs. Due to the drought Anne has increased watering costs and has not been able to sell her plants.Can Farmer Anne obtain an EM for lost income due to unsold inventory.

24

Calculating Losses

Does farmer Anne have a loss which is eligible for an EM loan and if so what amount is available to her?

Well let’s find out..........

25

Answer

No, The fact that Farmer Anne had increased watering costs or that nobody wants to purchase her nursery stock during a drought is not a reason which would make her eligible for an EM.

26

Scenario

Farmer Connie uses pasture for 6 months each year as part of her normal cattle operation. This year she could only graze her cattle for 2 months before her county was designated a Fast Track Disaster and she had to start buying feed. Can Farmer Connie receive an EM loan to buy feed for her cattle now?

27

Calculating Losses In the case of applicants who have suffered pasture losses,

immediate assistance can be obtained. The loss will be based on the amount of time the pasture would have normally been able to sustain the livestock versus when supplemental feeding was started. This loss calculation will be performed by using the FSA Farm Program’s established grazing periods used in the Livestock Forage Disaster Program (LFP) and cost per animal. The information will still be entered on the FSA-2309 and the FSA-925-1 will only be used to the point of calculating the monthly feed cost.

Did Farmer Connie’s loss of pasture qualify her for an EM loan? How would you calculate this loss? 28

Answer Yes, Farmer Connie can obtain a loan now to purchase

feed. The additional feeding period will be calculated by using the date the incident period began.

For Example:6 months = LFP established grazing period2 months = time grazing before the beginning date of the disaster4 months = 66% pasture loss and supplemental feeding time

Then:(Price of feed per head) X (number of livestock) X (time additional feed needed due to loss of pasture) = cost of supplemental feed needed and EM loan amount available.

29

Calculating LossesPhysical Losses

Costs associated with repairing or replacing chattel. Costs associated with repairing or replacing essential

property. Value of replacement livestock and livestock products. Applicant will supply livestock inventories and previous 3

year product sales. Costs to restore perennial crops to pre-disaster

development including annual operating expenses.

30

Rates, Terms, and RepaymentEmergency Loan Rate

• this rate is the Operating loan rate plus 1%.• this rate will change monthly along with other loan rates, see Handbook 1-FLP, Exhibit 17 for current rate.

Repayment schedules are based on useful life of security, repayment ability, and type of loss.

At minimum, all accrued interest must be paid each year.Repayment of loans for:

annual operating expenses normally repaid within 12 months. production or physical losses to chattel normally repaid within 7

years. real estate losses based on repayment ability and useful life of

security, not to exceed 40 years.31

Security Requirements EM loans must comply with the general security

requirements found in: 3-FLP

Par. 91 – guidelines for general security requirements Par. 92 – real estate requirements Par. 135(D) – FO security requirements Par. 205(A) – OL security requirements

32

Security Requirements

When adequate security is not available, a loan can be approved based on the applicant’s repayment ability provided: the applicant has pledged all assets,• if they are an entity all individual members have pledged all

assets, both personal and business, as collateral. the farm operating plan is feasible and based on their

production and income history, the applicant has had a positive net cash income in at least 3 of

the last 5 years, and the applicant has given FSA an assignment on all USDA

program payments.33

Real Estate Security RequirementsEM Loans made for losses to real estate are always

secured, at minimum, by the real estate that is purchased, repaired, replaced, or improved with the loan funds.

For loans over $25,000, title clearance is always required.

For loans of $25,000 or less, title clearance is not required unless the loan approval official is uncertain about the record of ownership or debts.

34

Appraisals and Valuation Requirements

Real estate appraisals, for applicant receiving an EM loan only, may be waived by the State Executive Director (SED). If waived, a state supplement will be issued to:

address how real estate values will be determined, require the estimated value be established and documented

by someone who has adequate experience and knowledge of security evaluations and has been delegated this authority by the SED. Values must be determined by someone other than the loan approval official.

establish procedures by which an applicant can dispute the estimated values.

35

Appraisals and Valuation Requirements

Values of Assets Damaged by Disaster Physical losses associated with livestock requires written

documentation of livestock inventory and records of product sales to determine values just prior to disaster.

Farm assets will be valued as of the day before the disaster.

36

EM Online Help

This PowerPoint presentation and other EM loan training tools can be found online at the FSA – Farm Loan Programs System home page under Manuals and Presentations.

37

Disaster Set-Aside (DSA)Purpose

DSA is intended to relieve some of the borrower’s immediate and temporary financial stress caused by a disaster. If the operation has demonstrated that it cannot make the payments due and requires restructure, Primary Loan Servicing must be used.

Borrowers are required to pay any portion of an installment they are able to pay. The borrower can have up to one installment set aside on each program loan (except YL).

38

Disaster Set-Aside (DSA)Basic Eligibility

The borrower must have operated a farm in a county designated or declared a disaster area or a contiguous county at the time of the disaster.

As a direct result of the natural disaster, the borrower does not have sufficient income available to pay all family living and farm operating expenses, other creditors, and debts to the Agency.

The borrower must apply prior to being 90 days past due, and DSA must be completed prior to the account becoming 165 days past due.

39

Disaster Set-Aside (DSA)Application

The borrower must submit actual production, income, and expense records for the production cycle in which the disaster occurred unless the Agency already has this information.

The borrower must also provide any documentation required to support the farm operating plan such as 3 years of production, income and expense records.

The borrower must develop a feasible plan showing that the borrower will be able to pay all operating expenses, taxes, essential family living expenses, and scheduled payments on all debts, including FLP debts.

40

Disaster Set-Aside (DSA)Interest Accrual and Term

Interest will accrue on the principal portion of the set-aside installment at the same rate charged on the balance of the loan.

The amount set-aside, including interest accrued on the principal portion of the set-aside, is due on or before the final due date of the loan.

41

Haying and Grazing CRPIf asked by producer about haying or grazing land

currently enrolled in CRP, advise them that they will need to work with FP to get prior approval and NRCS to get a modified conservation plan before any haying or grazing of CRP can happen or they will be in violation of their CRP agreement.

You may also tell the producer that there will be a reduction in his CRP payment if he does decide to hay or graze which is typically 25% but has been reduced to 10% for 2012.

42

43