Question

FSA has a direct OL with an outstanding balance of $70k and a first lien on breeding livestock as security. A lender proposes a guaranteed OL for $100,000 with a second lien on livestock as security for the guaranteed OL. The livestock is valued at $220,000. This is authorized

a) True
b) False

Answer 1

The authorization of a second guaranteed OL of $100,000 with a lien on livestock valued at $220,000, already securing a direct OL with a $70k balance, is typically feasible and authorized.

Step-by-step explanation:

The question pertains to the authorization of a guaranteed operating loan (OL) by a lender with a second lien on livestock, which is also serving as security for an existing direct operating loan with the FSA. Given that the livestock's value is $220,000, and the outstanding balance of the existing direct OL is $70,000, the proposal for a second, guaranteed OL of $100,000 is feasible, providing that the combined loans do not exceed the collateral's worth. This is generally authorized as long as the livestock's value sufficiently covers the total debt obligation of $170,000 ($70,000 + $100,000) and the lender follows any applicable intercreditor agreements or subordination arrangements.