Monday, November 9, 2015

Farm Storage Facility Loans

The Farm Storage Facility Loans are provides financing for farmers to build or upgrade storage, cold storage, and packing facilities.

Constructing on-farm storage facilities can help farmers succeed financially by giving them greater control over their products and the timing of marketing. USDA’s Farm Service Agency (FSA) provides low-interest loans for farmers to build storage units or to upgrade and expand existing storage. Historically, these loans have primarily benefited grain farmers, but a provision in the 2008 Farm Bill extended the program to fruit and vegetable producers for cold storage. Changes introduced by FSA in 2014 now also extend the program to washing and packing sheds. This will improve the ability of farmers selling in local and regional food markets to finance the storage and packing sheds they need to keep food fresh and safe prior to marketing. For fruit and vegetable growers, especially small and mid-scale family farmers, packing and storage sheds are critical pieces of their farm operations: this is where fresh produce is washed, sorted, graded, labeled, boxed up, and stored before it heads to market.

Learn more about the Farm Storage Facility Loans

The Farm Storage Facility Loan (FSFL) Program, administered by FSA, provides low-interest loans for producers to build or upgrade permanent facilities to store commodities, including fruit and vegetable cold storage, washing, packing, and handling buildings and equipment.

* Corn, grain sorghum, rice, soybeans, oats, peanuts, wheat, barley or minor oilseeds harvested as whole grain
* Corn, grain sorghum, wheat, oats or barley harvested as other-than-whole grain
* Pulse crops (lentils, chickpeas, dry peas)
* Fruits (includes nuts), vegetables, honey, hay, and renewable biomass
* Grain storage cribs, bins, and silos, and related electrical equipment
* Equipment to maintain, improve, or monitor stored grain quality
* Grain drying equipment
* Hay and biomass storage structures
* Cold storage buildings and equipment
* Packing sheds and handling equipment
* New structures suitable for cold storage
* New walk-in prefabricated permanently installed coolers
* New permanently affixed cooling, circulating and monitoring equipment
* Electrical equipment integral to the proper operation of a cold storage facility
* An addition or modification to an existing storage facility
* Boxing equipment
* Baggers
* Brush polishers
* Cold dip tanks
* Conveyors
* Drying tunnels
* Food safety-related equipment
* Hoppers
* Hydrocoolers
* Quality graders
* Sealants
* Sorting bins/tables
* Washers
* Waxers
* Weight graders
* Purchase price and sales tax
* Cost of new materials
* Shipping and delivery
* Site preparation costs
* Installation costs
* Off-farm paid labor
* Appraisals and legal fees
* Produce an eligible commodity
* Demonstrate a storage need
* Have a satisfactory credit rating and the ability to repay the loan
* Provide proof of all peril insurance and, if applicable, flood insurance
* Provide proof of multi-peril crop insurance (MPCI) or Non-Insured Crop Assistance Program (NAP) coverage; however, fruit and vegetable growers may request a waiver from FSA from the requirement to hold MCPI or NAP coverage
* Instead of providing the typically required three-year acreage yield reports, producers can now provide information on sales, volume sold (based on farmers market space or vehicle size), CSA shares, or other similar measures.

The FSFL requirement to first obtain crop insurance or non-insurance crop disaster assistance program (NAP) coverage can now be waived on a case-by-case basis, taking into account a variety of factors that result in the determination that crop insurance or NAP would not provide meaningful risk protection for the producer. These factors may include, but are not limited to, the application burden, number of crops, typical area planted to each crop, and whether the producer markets his or her product in a way that commands a premium above traditional wholesale market prices (e.g. direct-to-consumer, certified organic, etc.).

Because specialty crops are often processed before being placed in cold storage to maintain quality, the loans can now also finance packing sheds and certain handling equipment, such as packaging, cold dip tanks, sorting and grading bins and tables, washers, and waxers, among others.

Program Basics
The following commodities are currently eligible for farm storage facility loans:

Eligible uses for these types of loans include:

Structures and equipment generally must have an expected useful life of at least 15 years. Portable equipment, used bins, and used equipment are not eligible. Facilities that are not for the sole use of the borrower(s) are also not eligible.

For fruit and vegetable cold storage facilities, eligible uses include:

Additionally, fruit and vegetable producers may use FSFLs for structures and permanently affixed equipment required to get fruits and vegetables washed, treated and packed or otherwise required to maintain the quality of the crop. Among the items that can be financed are:

Among the eligible cost items are:

The maximum loan amount is $500,000. A cash down payment of 15 percent and a $100 non-refundable application are required. Loan terms are for 7, 10, or 12 years depending on the amount of the loan. The interest rate is fixed and set at the rate of interest charged on comparable U.S. Treasury securities, a lower rate than would be available commercially. Loans are repaid in equal amortized installments.

For loans that exceed $100,000, the borrower must provide a first lien on the real estate where the facility is situated, other real estate sufficient to secure the loan, or a letter of credit sufficient to protect the government’s interest. Loans of up to $100,000 may be secured by a promissory note only.

One partial disbursement of up to half the anticipated total cost is available when that portion of the structure has been completed. The final disbursement will be made when the entire structure has been completed and inspected by a USDA representative.

The local FSA county committee must approve all loans.

To be eligible for these loans, the borrower must:

Several other eligibility criteria apply.

Coordination with Other FSA Loan Programs — FSA Direct Operating Loans, including Microloans, can be used in conjunction with FSFLs. FSA state and local offices have been encouraged by USDA headquarters to leverage both programs as well as the knowledge and expertise of farm program and farm loan staff to promote creative solutions to producers’ needs for storage and equipment, including cold storage, packing sheds, and mobile equipment for local and regional food producers. For instance, growers could use a FSFL for building a cold storage and packing facility in combination with a Microloan to finance scales, portable equipment, and packing materials. Using both low-interest loan programs in combination may help finance the complete needs of a grower for storage, washing, packing, and transport.

The Program in Action
Since the inception of the program in 2000, more than 33,000 loans have been issued for on-farm storage. One of the most recent of those loans made use of the 2014 revisions to the program to benefit fruit and vegetable producers. Lindsay and Ben Shute, owners of Hearty Roots Community Farm in the Hudson Valley of New York State, received a FSFL to finance a cold storage and packing facility for their community supported agriculture (CSA) operation. They received a waiver from FSA from needing to have NAP or crop insurance coverage after demonstrating that such insurance was not meaningful for a CSA. They were also able to use an alternative method to determine their storage facility needs that were more appropriate to a highly diversified operation. Their experience has helped open the door for FSFLs to finance sorting, washing, grading and other critical handling needs of small, diversified specialty crop farms.   See more at this USDA blog.

How to Apply and Program Resources
Loan applications should be filed in the local FSA Office that maintains the farm’s records. To find your local office, use the service center locator.

The Farm Storage Loan application form is CCC Form 0185 and can be found on the FSFL overview page

For more information on the program, see FSA’s FSFL Fact Sheet

The final rule for the program is at 7 CFR 1436

For additional details, see the FSA FSFL Handbook

Program History, Funding, and Farm Bill Changes
The FSFL program in its current iteration was started administratively in 2000 by FSA. The program has permanent mandatory funding through the Commodity Credit Corporation (CCC) and does not require a congressional authorization or an appropriation. The costs of running the loan program are automatically reimbursed to the CCC.

Congress got into the act through the 2008 Farm Bill, which added hay and renewable biomass as well as fruits and vegetables as eligible commodities, added cold storage as eligible facilities, increased the maximum loan term to 12 years, increased the maximum loan about to $500,000, and allowed for partial loan disbursement during construction.

In 2014, FSA took several actions to improve the program, particularly for small and mid-sized farms in the local and regional food space:
The loan level that triggers additional security requirements is now $100,000, up from the previous $50,000 amount.
(Photo credit:  USDA)

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