August
2002
Loans for Socially Disadvantaged Persons
Overview
The Farm Service Agency (FSA) can make and
guarantee loans to socially disadvantaged applicants to buy and
operate family-size farms and ranches. Funds specifically
for these loans are reserved each year. Non-reserved funds
can also be utilized.
A socially disadvantaged farmer or rancher
is one of a group whose members have been subjected to racial,
ethnic, or gender prejudice because of their identity as members
of the group without regard to their individual qualities.
For purposes of this program, socially disadvantaged groups are
women, African Americans, American Indians, Alaskan Natives,
Hispanics, and Asian Americans and Pacific Islanders.
This program:
- Targets direct and guaranteed loan
assistance to socially disadvantaged persons;
- Discovers and removes barriers that
prevent full participation of those persons in FSA’s farm
loan programs; and
- Provides information and assistance to
applicants to help them develop sound farm management
practices, analyzes problems, and plans the best use of
available resources essential for success in farming or
ranching.
Types of Loans
Direct loans are made to applicants by FSA
and include both farm operating and farm ownership loans.
Guaranteed farm loans also may be made for
ownership or operating purposes, and may be made by any lending
institution subject to Federal or State supervision (banks,
savings and loans, and units of the Farm Credit System) and
guaranteed by FSA. Some State governments also operate farm loan
programs that are eligible for FSA guarantees. Typically, FSA
guarantees 90 or 95 percent of a loan against any loss that might
be incurred if the loan fails.
Use of Loan Funds
Farm Ownership Loans (FO) may be used to
purchase or enlarge a farm or ranch, purchase easements or rights
of way needed in the farm’s operation, erect or improve
buildings, promote soil and water conservation and development,
and pay closing costs. Reserved direct farm ownership loan funds
can only be used to purchase a farm or ranch. Guaranteed farm
ownership funds may also be used to refinance debt.
Farm Operating Loans (OL) may be used to
purchase livestock, poultry, farm equipment, feed, seed, fuel,
fertilizer, chemicals, hail and other crop insurance, food,
clothing, medical care, and hired labor. Funds also may be used to
refinance debt and to install or improve water systems for home
use, livestock or irrigation, and other improvements.
Who May Borrow
Individuals and entities primarily and
directly engaged in farming and ranching on family-size operations
may apply. A family-size farm is considered to be one that a
family can operate and manage itself. In addition to being members
of a socially disadvantaged group, individual applicants under
this program must meet all requirements for FSA’s regular farm
loan program assistance, including:
- Have a satisfactory history of meeting
credit obligations.
- Have sufficient education; training, or
at least 1-year’s experience in managing or operating a
farm or ranch within the last 5 years for a direct operating
loan, or, for a direct farm ownership loan, have
participated in the business operation of a farm or ranch
for 3 years;
- Be a citizen of the United States (or a
legal resident alien), including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, and certain former
Pacific Island Trust Territories;
- Be unable to obtain credit elsewhere at
reasonable rates and terms to meet actual needs; and
- Possess legal capacity to incur loan
obligations.
In the case of an entity, the members
holding a majority interest must meet the same eligibility
requirements. The entity must be authorized to operate a farm or
ranch in the State where the actual operation is located. In
addition, the entity must be owned by U.S. citizens or legal
resident aliens, and the socially disadvantaged members must hold
a majority interest in the entity.
If the individuals holding a majority
interest in the entity are related by blood or marriage, at least
one stockholder, member, or partner must operate the family farm
or ranch. If they are not related by blood or marriage, those
holding a majority interest must operate the farm or ranch.
Terms and Interest Rates
Repayment terms for direct operating loans
depend on the collateral securing the loan and usually run from 1
to 7 years. Interest rates for direct loans are set periodically
according to the Government’s cost of borrowing. Repayment terms
for direct farm ownership loans are up to 40 years.
Interest rates for guaranteed loans are
established by the lender, but may not exceed the rate the lender
charges its average farm loan customer. Guaranteed loan terms are
set by the lender.
Getting a Loan
Applications for all FSA direct loan
programs are made through FSA’s local offices. These are listed
in telephone directories under "United States Government,
Department of Agriculture."
Guaranteed loan applications are made with
the lender. In cases where a lender is not known to an applicant,
local office personnel will assist the applicant.
For more information
Further information is available from local
USDA Service Centers or on the FSA website at: www.fsa.usda.gov.
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