Historic, Archive Document Do not assume content reflects current scientific knowledge, policies, or practices. I United States Department ofAgriculture Farmers Home Administration Program Aid 1002 Farm Operating Loans Farm Operating Loans The Farmers Home Administration (FmHA) makes and guarantees farm operating loans and providestechnical management assistanceto family farmers and ranchers. A "familyfarm" is defined as onethat afamily can operate and manage itselfwith a reasonable amount of hired labor. These loans aretailored to a borrower's needs. The FmHA county supervisor helpsthe borroweranalyze prob- lems, determine available resources, and plan how resources can best be used. Each applicant is given equal consideration without regard to race, national origin, color, religion, sex, marital status, age, or handicap. How May Loan Funds Be Used? Farm operating loan funds may be used to payfor items needed fora successful operation. These items include livestock, poultry, farm and home equipment, feed, seed, fuel, fertilizer, chemicals, hail and othercrop insurance, food, clothing, medical care, and hired labor. Certain debts may be refinanced with an FmHA loan. Minor improvements to buildings and real estate may be made, and water systems may be developed for home, livestock, and irrigation use. Funds may be used to finance the purchase ofequipmentfor producing and harvesting trees and other products, for producing fish undercontrolled conditions, for roadside produce markets, and for nonfarm business enterprises. Funds also may be used to control and abate pollution and to alterequipment, facilities, or methods ofoperation to complywith the Occupational Safety and Health Actof 1970. What AreTheTerms And Interest Rates? Repaymentterms and interest rates vary according to the type of loan made. Repayment is scheduled according to the borrower's abilityto repay. The interest rate is set periodically, based on the cost of borrowing to the Govern- ment. A lower interest rate is available for borrowers with limited resources. Loansto limited resource borrowers will be reviewed each yearand the interest rate increased ifthe borrower has sufficient repaymentability. If at anytime, however, the borrower has sufficient income and repayment abilityto paythe current ratethen being charged, the borrower's interest ratewill be increased to the current rate. For loans made by other lenders and guaranteed by FmHA, the interest rate and paymentterms will be agreed upon by the borrowerand the lender. Interest rates on these loans may not exceed the rate charged the lender's average farm customer. Each borrowerwho receives an insured loan is expected to refinance the unpaid balance ofthe loan when it isfinan- ciallyfeasibleto rely on commercial creditsources. Who May Borrow? Individuals, partnerships, jointoperations, cooperatives, and corporations primarily and directly engaged in farming and ranching on family-size operations may apply. To be eligible, an individual must: • have asatisfactory history of meeting credit obliga- tions; • have sufficient education, training, orexperience in managing or operating afarm or ranch (within 1 ofthe last 5 years) and possess the industry and ability needed to succeed in farming; • be a citizen ofthe United States (or a legal resident alien), which includes Puerto Rico, the Virgin Islands, Guam, Amehcan Samoa, and certain former PacificTrustTerritories; • possessthe legal capacityto incurthe obligations of the loan; • be unable to obtain sufficientcredit elsewhere at reasonable rates and terms to finance actual needs; • be the ownerortenant operating afamilyfarm afterthe loan is closed. In the case ofcorporations, cooperatives, joint opera- tions, or partnerships, the stockholders, members, or partners holding a majority interest must meetthese same eligibility requirements, and the entity must be authorized to operate a farm or ranch in the Statewherethe land is located. Ifthe individuals holding a majority interest in the entity are related by blood or marriage, at least one stockholder, member, or partner mustoperate the familyfarm. If not related by blood or marriage, those members, stockholders, partners, orjointoperators holding a majority interest in the entity mustoperatethe farm. Who Determines Eligibility? The countyorareacommittee ofthe FmHAdetermines eligibility ofapplicants underthe law. The committee consists ofthree personswho know local farming and creditcondi- tions. IfThe Applicant Is Eligible, What isThe Next Step? The FmHA countysupervisorwill assistthe applicant in working out a plan to make the best use of land, labor, livestock, capital, and equipment. Before a loan is made, it must be clearthatthe borrowerwill have enough incometo meetoperating and family expenses and to repaythe loan and otherdebts. Should ATenant Have AWritten Lease? In mostcases, yes. With orwithout awritten lease, however, afarm operating loan will not be made unlessthe applicant hasthe use of afarm fora long enough period to carry out asuccessful farming operation. What Assistance MayThe Borrower Expect After Receiving A Loan? These loans are accompanied bytechnical adviceto help borrowers make profitable use oftheir land, water, capital, and other resources. Can A Borrower UseOtherCredit? Yes. Borrowers are encouragedto obtain needed additional creditfrom othersources when it is advisable forasuccessful operation and is available at reasonable rates and terms. WhatSecurity Is Required? Each loan will be secured adequatelyto protectthe interest ofthe Government. Security usually consists of a first lien on cropsto be produced and on livestockand equipment purchased or refinanced with loan funds. A lien may betaken on certain otherchattel and real estate property, and an assignment usuallywill betaken on income such asthatfrom adairy enterprise. What Determines The Size OfThe Loan? The FmHAcountysupervisorand the applicant determinethe amountoffarm operating creditthat is needed forthe operation. The limiton farm operating loans made directly by FmHA is $200,000. The agency can guarantee loans of upto $400,000 foroperating purposes. Can A Part-time Farmer Qualify For A Loan? Yes, ifotherwise eligible and ifthefarming income is necessaryto provide adequate family income. Does Cost Anything To Apply ForA Loan? It No. Ifa loan is made, however, the borrower pays the fees charged for lien searches and forfiling and recording security instruments. Where Can You Apply ForA Loan? Apply atthe FmHAcounty office servicing the area in which you expectto carryout youroperations. Ifyou are unable to locate the local FmHA office, write the Farmers Home Administration, U.S. Department ofAgriculture, Washington, DC 20250. Be sure to give the name ofthe county in which you plan to operate a farm. What Other Farm-related Loans Are Made By FmHA? Loans may be madeto purchase and developfarms; build and improve rural homes, farm labor housing, and essential farm buildings; finance projects for rural youths; and meetemergency credit needs offarmers suffering from natural disaster. Farmers Home Administration is an Equal Opportunity Lender. Complaints ofdiscrimination should be sentto: Secretary ofAgriculture, Washington, DC 20250. Revised March 1991 •U.S.GOVERNMENTPRINTINGOFFICE:1991-291-137