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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
