Loan Approval Struggles: FSA Joint Financing Case Study
- Grant Wiese
- May 5
- 4 min read
SW Financial Literacy
Loan Approval Struggles
FSA Joint Financing Case Study
The Situation
I once got a call from a young farmer who was in the process of buying their first farm. The purchase was being made through a family connection, and they were eligible for FSA’s joint financing program—a powerful tool for beginning farmers with limited equity.
But this was no small transaction. It was a very large purchase, and from the start, it was clear this would be a challenge. For first-time buyers, I typically recommend starting with a smaller property or something with sweat-equity potential. In this case, they were going to max out their FSA borrowing capacity right out of the gate.
By the time I was brought in, several things had already happened:
Their FSA loan application had already been declined due to a negative cash flow projection. Frustration levels were high, and the farmer had already pushed back hard on the FSA loan officers.
The farmer was to work with a different lender for financing and that bank had struck out on changing FSA’s credit decision. That’s fine; I’m here to help.
Understanding the Landscape
Let me start with something important: Every lender—banks, credit unions, the FSA—has their own rules, requirements, and preferences. Some are shaped by past losses, others by regulation, and others still by internal policy.
For example, home mortgages are far more regulated than many commercial loans. They require more documentation upfront, but they may also offer lower down payments. That doesn’t make one type of financing better than another—it just means different lenders play by different rules.
FSA, as a government agency, is no exception. Their beginning farmer program is unique. It’s one of the only ways a new farmer can finance 100% of a land purchase without significant cash or collateral. But that kind of opportunity comes with extra scrutiny. And unfortunately, that scrutiny caught up with this borrower.
The Farmer’s Problem
While the farmer had submitted a cash flow showing a positive outcome, FSA made adjustments per their regulations—and the cash flow turned $40,000 negative.
Here’s what changed:
Commodity Prices:
FSA uses their preset spring prices—not your forward contracts or today's market values. If you're contracted grain at $6 but the FSA spring price is $5.25, they use the lower number. No exceptions.
APH (Average Production History):
The farmer had used optimistic yields in their projections, but the APH told a different story. Years of hail and wind had dragged the average down, and FSA adjusted accordingly. Crop insurance payouts could have helped here, but those weren’t properly accounted for in the application.
Future Income:
The farmer planned to take on a part-time commission-based job and included that income in the projections. Unfortunately, unless you have a W-2 or stable history, lenders (including FSA) won’t include speculative income—especially from a job you haven’t started.
Expenses:
The submitted expenses were far below industry averages. FSA flagged this immediately and adjusted them higher to reflect current input costs. Overly optimistic expense projections always raise red flags.
Possible Solutions
The farmer was understandably frustrated. But from a lender's perspective, when a cash flow is off in multiple places—commodity pricing, yields, income, expenses—it starts to raise concerns about management skills and realism.
That said, there are often MANY ways forward. Here’s what I recommended:
Involve Your Primary Lender:
If your family has worked with a local bank for generations, get them involved. They can vouch for your operating costs and help validate the numbers.
Gather Quotes:
Collect quotes for inputs—seed, fertilizer, chemical—on vendor letterhead. It’s easy to verify and can help build credibility.
Confirm Outside Income:
Even if you can’t use a new job’s income, check with other local reps in the same role. If they earned $X their first year, that can give both you and the lender peace of mind—even if it doesn’t show up in the cash flow.
Work With Your Insurance Agent:
If you’ve had low APH due to weather, ask your agent to document crop insurance payouts. These records can demonstrate consistent revenue despite yield hiccups.
Tap Into Family Support:
Could you trade labor for additional family wages? If the farm's income needs a bump, sometimes shifting income from other parts of the family operation can help balance the cash flow.
Restructure the Deal:
Maybe buying the entire farm at once is just too much. Could you buy half now and the rest later? Creative structuring with family can make a world of difference.
Bring in a Co-Maker:
If all else fails, you can add a co-signer—someone like a parent or family member. That alone can shift a “no” to a “yes.” It’s not always ideal, but it’s an option that keeps the dream alive.
The Takeaway
Nine times out of ten, there's a path forward—you just need to find it.
Stay humble. Stay open. And work with people who know how to help you navigate the maze. I’m not sure if this farmer got the loan in the end. I don’t know if they took my advice. But I do know the solutions were there.
Some rules won’t change—so stop trying to break down a concrete wall. Instead, look for the open gate next to it. That’s usually where the opportunity lies.
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Have a great week!
Grant
