FSA Direct Loans Loan Making

Transcription

1 FSA Direct Loans Loan Making CAUTION: This is an outline for educational purposes only. To learn the details about any certain point, read the current statutes, regulations, and policy notices, which can change frequently. These materials cannot substitute for an experienced lawyer who is up to date on the latest changes in federal laws and regulations. Farmers Legal Action Group, Inc. 46 4th Street East, Suite 1301 St. Paul, MN Phone: Fax: Copyright 2003, Farmers Legal Action Group, Inc. This outline may be reprinted for educational purposes only so long as Farmers Legal Action Group is credited when reprinting.

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3 FSA Direct Loans Loan Making Page 1 FSA Direct Loans Loan Making CAUTION: This is an outline for educational purposes only. To learn the details about any certain point, read the current statutes, regulations, and policy notices, which can change frequently. These materials cannot substitute for an experienced lawyer who is up to date on the latest changes in federal laws and regulations. I. Introduction A. The rules for DIRECT loans differ in some important respects from those for GUARANTEED loans. B. Key Concept: If you meet all of the requirements, you are entitled to the loan. C. A substantial portion of FSA s direct loan funds is targeted toward qualified beginning farmers and ranchers. 1 D. Completed applications generally must be considered in the order received. 2 Thus, farmers should get in line, even if they are told that funds are not currently available. Loans applications cannot be disapproved solely because the agency lacks funding, but should be placed in pending status and reconsidered when funds become available. 3 E. FSA regulations provide that all persons wishing to submit applications should be encouraged to do so and will be provided assistance from local FSA personnel if needed. 4 These regulations also state that no applicant or potential applicant should be discouraged from applying for credit assistance by FSA personnel based on certain prohibited bases U.S.C. 1994(b)(2)(A) [70 percent of direct FO loan funds are reserved for qualified beginning farmers and ranchers; of the amounts reserved for beginning farmers and ranchers, 60 percent is reserved for the down payment program (see 7 U.S.C. 1935) until April 1 of each fiscal year; 35 percent of direct OL loan funds are reserved for qualified beginning farmers and ranchers in fiscal years ]. 2 7 C.F.R (a), ((b) (2003). 3 7 U.S.C. 1983a(a)(4). 4 7 C.F.R (a), (b) (2003). 5 7 C.F.R (a) (2003); 15 U.S.C [Equal Credit Opportunity Act (ECOA) prohibited discrimination bases: race, color, national origin, religion, sex, marital status, age, receipt of government assistance, good faith exercise of any right under the Consumer Credit Protection Act]

4 FSA Direct Loans Loan Making See cautionary note on page 1. Page 2 F. The farmer should get a decision within 60 days after filing a completed application. 6 II. Types of Loans A. Direct Farm Ownership (FO) Loans 1. Objective: to provide credit and management assistance to eligible farmers and ranchers to become owners-operators of family-sized farms or to continue such operations when credit is not available elsewhere Authorized Loan Purposes: a. A farmer or rancher may use a direct FO loan only to: 8 (1) Acquire or enlarge a farm or ranch (2) Make capital improvements to a farm or ranch (3) Pay loan closing costs related to acquiring, enlarging, or improving a farm or ranch, or (4) Pay for activities to promote soil and water conservation and protection on a farm or ranch (5) Refinance, a temporary bridge loan made by a commercial or cooperative lender to a farmer or rancher for the acquisition of land for a farm or ranch, if certain conditions are met: (a) The applicant had been approved for a direct FO loan for the acquisition (b) Direct FO funds were not available to fund the loan at the time of approval (c) The loan to be refinanced is temporary financing. b. The 1996 Farm Bill (the FAIR Act ) eliminated authorization for using direct FO loans for refinancing debt other than certain temporary bridge loans, certain non-farm enterprises, or pollution control U.S.C. 1983a(1); 7 C.F.R (j)(1) (2003). 7 7 C.F.R (2003). 8 7 U.S.C (a)(1); 7 C.F.R (2003). 9 P.L , Title VI, Subtitle A, 602(a), 110 Stat (codified at 7 U.S.C. 1923).

5 See cautionary note on page 1. FSA Direct Loans Loan Making Page 3 c. An FO loan will not be approved for any purpose that will contribute to excessive erosion or to conversion of wetlands to production of agricultural commodities Limits: The borrower s total outstanding direct FO loan principal balance (including the proposed new loan) must be the lesser of $200,000 or the market value of the security. 11 Borrowers who also have FSA guaranteed loans have an additional limitation, which is discussed in FLAG s FSA Guaranteed Loans outline Terms: a. Maximum repayment period is 40 years. 13 b. Interest: At the borrower s request, he or she may elect the lower of the interest rates in effect at the time of loan approval or loan closing. 14 If no request is made, the interest rate in effect at loan approval will be used. A lower interest rate is available to eligible borrowers who qualify as limited resource applicants. 15 For example, for April 2003, the standard FO interest rate is 5.5 percent, while the limited resource FO interest rate is 5 percent. 16 A lower interest rate may also be available if the direct FO loan is part of a joint financing arrangement with a private lender and FSA is 10 7 C.F.R (b) (2003) C.F.R (a)(1) (2003); 7 U.S.C. 1925(a). This total also includes any direct Soil and Water (SW) loan principal and direct Recreation (RL) loan principal owed by the borrower. FSA generally does not make these types of loans anymore. SW loan regulations can be found at 7 C.F.R. pt. 1943, subpart B (2003). RL loan regulations have been removed C.F.R (2003) C.F.R (a) (2003) U.S.C. 1927a. 7 C.F.R (b) (2003). The interest rates should be specified in Exhibit B of FmHA Instruction 440.1, available in FSA county offices. They are also available on the Internet in monthly notices issued by FSA U.S.C. 1934; 7 C.F.R (b) (2003). See definition at 7 C.F.R , Limited resource applicant (2003). 16 FSA Notice BU-643, April 2003 Interest Rate Changes for Agricultural Credit Insurance Fund (ACIF) Program (March 21, 2003).

6 FSA Direct Loans Loan Making See cautionary note on page 1. Page 4 providing 50 percent or less of the total funds needed. 17 The current joint financing FO interest rate is 5 percent. 18 c. Security: total security required for the FO loan will be the lesser of 150 percent of the value of the loan or all real estate owned by the applicant. 19 The regulations also state that a loan will be considered adequately secured when the real estate security for the loan is at least equal to the loan amount. 20 A mortgage must be given on any real estate purchased or improved with the FO loan funds Preference. In making FO loans, FSA gives preference to a person who: 22 a. Has a dependent family; b. Is able to make an initial down payment on the farm or ranch; or c. Is an owner of livestock or farm or ranch equipment that is necessary to successfully carry out farming or ranching operations. B. Downpayment FO Loan Program for Beginning Farmers and Ranchers 1. Purposes. The Downpayment FO Loan program provides loans for up to 40 percent of the value of a farm or ranch property. 23 The maximum loan is 40 percent of whichever is lower, the purchase price or appraised value of the property. The remaining balance of the purchase price or appraised value, whichever is lower and not to exceed 50 percent, may be guaranteed by FSA U.S.C. 1927(a)(3)(D); 7 C.F.R (c) (2003) (the rate must be at least 4 percent). 18 FSA Notice BU-643, April 2003 Interest Rate Changes for Agricultural Credit Insurance Fund (ACIF) Program (March 21, 2003) C.F.R (2003). In some cases, chattel or a pledge of real estate by a third party may also serve as security. 7 C.F.R (b) and (c)(2003) C.F.R (2003) C.F.R (a)(1) (2003) U.S.C. 1923(b). 7 C.F.R (2003). This preference may be inconsistent with the first in time rule. There is also a preference for veterans of wars in certain circumstances. 7 U.S.C. 1983(5); 7 C.F.R (2003) C.F.R (c) (2003). As noted earlier, 60 percent of the funds available for direct FO loans are reserved for this program until April 1 of each fiscal year. 7 U.S.C (b)(2)(a)(ii) C.F.R (c) (2003).

7 See cautionary note on page 1. FSA Direct Loans Loan Making Page 5 2. Requirements: 25 a. The borrower must be a beginning farmer as defined by FSA; 26 b. The property must be worth no more than $250,000 (lesser of purchase price or appraised value); c. The borrower must provide at least 10 percent of the purchase price; d. Financing from FSA and other creditors must account for no more than 90 percent of the lesser of the purchase price or appraised value; e. Other creditors loans must be amortized for at least 30 years, and there must be no balloon payment due within 10 years. 3. Terms: a. The interest rate on downpayment FO loans is 4 percent. 27 b. Maximum loan term is 15 years. 28 c. The loan must be paid in equal annual installments. 29 d. Security for downpayment FO loans is limited to the property being acquired with the loan funds. 30 Other FSA security requirements (including the 150 percent rule) do not apply; however, the borrower must obtain FSA approval before granting any additional security interest in the property U.S.C. 1935; 7 C.F.R (2003) C.F.R (b) (2003). Beginning farmer or rancher for FO loan purposes is defined by statute and regulation, in part, as one who has not operated a farm or ranch for more than 10 years, if at all; materially and substantially participates in the operation of the farm or ranch including providing substantial day-to-day labor and management of the farm or ranch; agrees to participate in loan assessment, borrower training; and financial management programs as required by FSA; owns land (if any) the aggregate acreage of which does not exceed 30 percent of the median acreage of the farms or ranches in the county where the applicant s operations are located; and demonstrates that available resources of the applicant and spouse (if any) are not sufficient to enable applicant to enter or continue farming on a viable scale. 7 U.S.C. 1991(a)(11); 7 C.F.R , Beginning farmer or rancher (2003) U.S.C. 1935(b)(2); 7 C.F.R (e)(1) (2003) U.S.C. 1935(b)(3); 7 C.F.R (e)(2)(i) (2003) U.S.C. 1935(b)(4); 7 C.F.R (e)(2)(ii) (2003) U.S.C. 1935(b)(5); 7 C.F.R (f) (2003) U.S.C. 1935(b)(5)(C); 7 C.F.R (f)(1), (3) (2003).

8 FSA Direct Loans Loan Making See cautionary note on page 1. Page 6 C. Direct Operating (OL) Loans 1. Objective: to provide credit and management assistance to eligible farmers and ranchers to become owners-operators of family-sized farms or to continue such operations when credit is not available elsewhere Authorized Loan Purposes: 33 a. Loan purposes available to all OL loan borrowers are (note there are some differences for Lo-Doc borrowers, discussed below): (1) Paying annual operating expenses; (2) Paying the costs of training required or recommended by FSA; and (3) Paying family living expenses. 34 b. Additional loan purposes available to OL loan borrowers who have never received a writedown under FSA s direct or guaranteed loan programs are: (1) Purchasing farm machinery and equipment, livestock, poultry, quotas or bases, or cooperative stock for credit, processing, or marketing purposes; (2) Paying the costs of reorganizing the farm or ranch to improve profitability; (3) Paying the costs of complying with federal or state occupational health and safety requirements if compliance would cause the borrower substantial economic injury; (4) Paying the costs of land and water development for use or conservation; and (5) Paying loan closing costs. (6) Refinancing existing debt if the following conditions are met: 32 7 C.F.R (2003) U.S.C. 1942; 7 C.F.R (2003). 34 A borrower is entitled to have a portion of an OL loan available outside a supervised bank account. This amount is the least of the following: (1) $5000; (2) 10 percent of the OL loan; or (3) the subsistence needs of the borrower s family for 3 months. 7 U.S.C. 1942(d); 7 C.F.R (h) (2003).

9 See cautionary note on page 1. FSA Direct Loans Loan Making Page 7 (a) The borrower has had direct or guaranteed OL loan refinancing no more than four times in the past, (b) The debt to be refinanced was not incurred for the purchase of real estate, 35 and (c) One of the following is true: (i) (ii) The need for refinancing is due to a qualifying natural disaster; or The applicant is refinancing debt owed to a non- USDA creditor. c. An OL loan will not be approved for the purchase of real estate or for making principal payments on real estate. 36 d. An OL loan will not be approved for any purpose that will contribute to excessive erosion or to conversion of wetlands to production of agricultural commodities Limits: The borrower s total outstanding direct OL principal balance (including the proposed new loan) must be $200,000 or less at loan closing. 38 Borrowers who also have FSA guaranteed loans have an additional limitation, which is discussed in FLAG s FSA Guaranteed Loans outline Terms: a. Maximum repayment period is 7 years, with the first installment due no later than 18 months after loan closing. 40 b. If the loan is for annual operating expenses, the loan must generally be repaid within 18 months of loan closing. 41 c. If the loan is for purposes other than annual operating expenses, the loan will be scheduled over the minimum period necessary 35 7 C.F.R (c) (2003) C.F.R (c) (2003) C.F.R (d) (2003) C.F.R (a) (2003) C.F.R (a)(1)(ii)(2003) C.F.R (b)(1) (2003) C.F.R (b)(2) (2003).

10 FSA Direct Loans Loan Making See cautionary note on page 1. Page 8 considering the borrower s ability to pay, the life of the security, and the maximum repayment period of 7 years. 42 d. Interest: At the borrower s request, he or she may elect the lower of the interest rates in effect at the time of loan approval or loan closing. 43 If no request is made, the interest rate in effect at loan approval will be used. A lower interest rate is available to eligible borrowers who qualify as limited resources applicants. 44 CAUTION: in light of current very low market interest rates, it is important for OL loan applicants to consider whether the standard OL rate might be better for them than the limited resource rate. For example, for April 2003, the standard OL interest rate is 3.5 percent, while the limited resource OL interest rate is 5 percent. 45 e. Security: To secure direct OL loans, FSA will generally take an interest in collateral worth up to 150 percent of the value of loan. 46 This may include liens on crops, livestock, and other chattel, a lien on real estate, or an assignment of income. A first lien must be given to FSA on any property purchased, produced, or refinanced with the loan funds. 47 D. Lo-Documentation OL Loan Processing 1. Objective: Since January 9, 2001, FSA has had in place a special, streamlined processing procedure for certain OL loan applications. 48 According to FSA, the intent of the new procedure is to enable the agency to get OL loan funds out more quickly to many farmers, while concentrating staff time on helping beginning farmers and evaluating applications that represent a higher risk to the government, either because of high loan amounts, larger, more complex operations, or past repayment difficulties C.F.R (b)(3) (2003) U.S.C. 1927a; 7 C.F.R (a) (2003). The interest rates should be specified in Exhibit B of Agency Instruction 440.1, available in FSA county offices. They are also available on the Internet in monthly notices issued by FSA U.S.C. 1934; 7 C.F.R (a) (2003). See definition at 7 C.F.R , Limited resources applicant (2003). 45 FSA Notice BU-643, April 2003 Interest Rate Changes for Agricultural Credit Insurance Fund (ACIF) Program (March 21, 2003) C.F.R (2003) C.F.R (a)(1) (2003) Fed. Reg (2001).

11 See cautionary note on page 1. FSA Direct Loans Loan Making Page 9 2. What it means: Borrowers who are eligible to have their OL loan application processed through the Lo-Doc process may omit the following components of a typical OL loan application: 49 a. A Statement of Debts and Collateral form; b. Verification of employment; c. A written statement of borrower training and experience (only ever required of new applicants); d. Documented verification that the borrower cannot obtain credit elsewhere; e. Financial records for the previous five years; f. Production records for the previous five years; g. A written description of the operation and its size (only ever required of new applicants and borrowers making significant changes); and h. A legal description of the farm property and copies of any pertinent leases or contracts. However, FSA reserves the right to later request any or all of this documentation if needed to make a determination on the borrower s application Availability: In addition to the general OL loan eligibility requirements discussed below, a borrower seeking to take advantage of the Lo-Doc process must meet the following requirements: 51 a. Be current on payments to all creditors, including FSA; b. Not have received loan servicing or disaster set-aside on any FSA debt in the past five years; and c. Meet one of the following criteria: (1) Be requesting a loan of $50,000 or less and have total outstanding OL loan debt (including the new loan) of less than $100,000 at the time of loan closing; or 49 7 C.F.R (c)(2) (2003) C.F.R (c)(2) (2003) C.F.R (c)(1) (2003).

12 FSA Direct Loans Loan Making See cautionary note on page 1. Page 10 (2) Be an existing FSA borrower who has received and repaid, as scheduled, at least two previous annual OL loans from FSA. (A so-called recurring applicant. ) 4. Loan Purposes. Available loan purposes for OL loans made through the Lo- Doc process are somewhat restricted and are different depending on how the borrower qualifies for the Lo-Doc process. 52 a. Borrowers qualifying for the Lo-Doc process as recurring applicants process can only be seeking OL loans to be used for the following purposes: (1) Paying annual operating expenses; and (2) Paying family living expenses. b. Borrowers qualifying for the Lo-Doc process because they are seeking a loan of $50,000 or less may use the loan funds for any eligible OL loan purpose, discussed above, except refinancing. Borrowers seeking to refinance existing debt with OL loan funds cannot use the Lo-Doc process. III. Eligibility A. General eligibility criteria for all direct FO and OL loans: Borrower must be a citizen or lawful alien resident of the United States. 2. Borrower must have the legal capacity to incur the debt. 3. Borrower must have sufficient applicable education or on the job training or experience in managing or operating a farm or ranch, except for OL youth loans. Also, OL regulations explicitly state that one year's complete production and marketing cycle within the last five years is sufficient managing or operating experience. 4. Borrower must have an acceptable credit history. 54 Also, FSA regulations provide that the following circumstances do not necessarily indicate unacceptable credit history: C.F.R (2003). 53 The first seven criteria are from 7 C.F.R (2003) (for FO loans) and 7 C.F.R (2003) (for OL loans) C.F.R (2003) C.F.R (c) (2003).

13 See cautionary note on page 1. FSA Direct Loans Loan Making Page 11 (1) Foreclosure, judgment, or delinquent payments that occurred more than 36 months before application if there are no recent similar situations. (2) FSA delinquencies resolved through loan servicing. 56 (3) Isolated incidents of delinquent payments that do not represent a general pattern of unsatisfactory or slow payment. (4) No history of credit transactions. (5) Recent bankruptcy, foreclosure, judgment, or delinquent payments if: (a) Circumstances causing the situation were of a temporary nature and beyond the borrower s control; or (b) The borrower refused to pay because of a justifiable dispute about goods or services. (6) Non-payment of a debt due to circumstances beyond the applicant's or borrower's control. However, non-payment of a debt due to circumstances within an applicant's or borrower's control may be used as an indication of unacceptable credit history. 5. Borrower must be unable to get sufficient credit elsewhere. 6. Borrower must be the owner-operator and/or tenant-operator, in the case of OL loans, of not larger than a family-sized farm. 7. Borrower must not be delinquent on any non-tax federal debt at loan closing. 8. Borrower must agree to meet certain training requirements unless a waiver is properly granted. 57 Congress in the 2002 Farm Bill directed the Secretary of Agriculture to establish criteria for waivers of these training requirements that will be applied consistently nationwide. 58 The intent of Congress appears to be the reduction of the availability of training waivers to borrowers. 56 The regulation formerly included most debt settlements among factors that would not indicate unacceptable credit history. This provision is no longer in the regulations, and one stating that current or previous delinquent FSA loans will be used to help determine the credit history of an applicant, has been added. 7 C.F.R (d) (2003) C.F.R (b)(2) (2003). 58 Farm Security and Rural Investment Act of 2002, Pub. L. No , 5316 (May 13, 2002).

14 FSA Direct Loans Loan Making See cautionary note on page 1. Page Borrower has or agrees to obtain hazard insurance on any property to be acquired or improved with the loan, as well as on property serving as primary security for the loan Borrower agrees to obtain at least the catastrophic risk protection (CAT) level of crop insurance on every crop of economic significance or to waive eligibility for emergency crop loss assistance (not include FSA Emergency Loans) for any uninsured crop Borrower has not exceeded term limits for receiving direct FSA loans. These time limits are as follows: a. FO loans. The general rule is that as of April 4, 1996, a borrower cannot get a new direct FO loan if he or she has had an outstanding direct FO loan for more than 10 years total. 61 Exception: If borrower had a direct FO loan outstanding on April 4, 1996, time limits are set by the following rules: (1) If, as of April 4, 1996, the borrower had a direct FO loan for less than five years, he or she can get a new direct FO loan through April 4, 2006; (2) If, as of April 4, 1996, the applicant had a direct FO loan for five years or more, he or she could get a new direct FO loan through April 4, b. OL loans. The general rule is that as of April 4, 1996, a borrower cannot get a new direct OL loan if he or she has taken a direct OL loan from FSA in 7 or more calendar years. 62 (1) Ten-Year Term Limit for Beginning Farmers and Ranchers. New statutory language indicates that as long as a borrower qualifies as a beginning farmer or rancher, there is no limit on the number of years the borrower can receive a direct operating loan. Since a 59 7 U.S.C. 1923(c). 7 U.S.C. 1942(c). 7 C.F.R. pt. 1806, subpart A (2003); 7 C.F.R (c) (2003) (for OL loans); 7 C.F.R (d) (2003) (for FO loans). Special rules apply for flood or mudslide prone areas. 7 C.F.R (d)(3) (2003) C.F.R (2003) (for OL loans); 7 C.F.R (d)(2) (2003) (for FO loans). A crop of economic significance has a particular meaning for crop insurance purposes. See 7 C.F.R , Catastrophic Risk Protection Endorsement, 1. Definitions, Crop of economic significance (2003) U.S.C. 1922(b); 7 C.F.R (a)(6) (2003). These time limits also apply to anyone who signs the promissory note with the borrower U.S.C. 1941(c)(1)(C); 7 C.F.R (a)(6) (2003).

15 See cautionary note on page 1. FSA Direct Loans Loan Making Page 13 farmer or rancher can operate a farm or ranch for up to ten years and still qualify as a beginning farmer or rancher, this new change should make the effective OL term limit a maximum of ten years for such farmers and ranchers. 63 (2) Term Limit Waiver Possibilities: 64 (a) Farmers and ranchers whose land is subject to the jurisdiction of an Indian tribe and whose loan is secured by one or more security instruments subject to the jurisdiction of an Indian tribe may receive a waiver from the Secretary of Agriculture if she determines that commercial credit is not generally available for such operations. (b) On a case-by-case basis, farmers and ranchers who have viable operations, who have unsuccessfully applied for commercial credit, and who have completed or will complete FSA borrower training may have the OL term limits waived for two years. This is only available once for each borrower. 12. Borrower has not received debt forgiveness. 65 a. Exception: Borrowers with debt forgiveness may be eligible for a new direct OL loan to cover annual operating expenses, including family living expenses, if their prior debt forgiveness was through one of the following: 66 (1) A writedown, or (2) A discharge in a reorganization bankruptcy, so long as the borrower is current on all payments for the reorganization plan U.S.C (c)(1)(a) U.S.C (c)(4) U.S.C. 2008h(b); 7 C.F.R (a)(8) (2003) (for OL loans); 7 C.F.R (a)(8) (2003) (for FO loans). Debt forgiveness is defined as the reduction or termination of a direct or guaranteed loan resulting in a loss to the Secretary by write-down, write-off, debt settlement, payment of a loss claim on a guaranteed loan, or a discharge in bankruptcy. 7 U.S.C. 1991(a)(12). Note that a bankruptcy in which FSA/FmHA debt was not discharged does not result in a loss to the Secretary. Similarly, if payment on a shared appreciation agreement enabled the Secretary to recoup all prior losses, arguably the writedown did not result in a net loss to the Secretary U.S.C. 2008h(b)(2)(A).

16 FSA Direct Loans Loan Making See cautionary note on page 1. Page 14 b. Exception: a borrower may be eligible for a direct or guaranteed annual operating loan if the borrower received debt forgiveness that was directly and primarily the result of a disaster or emergency declared on or after April 4, This exception may only be used once. 67 B. Eligibility requirement for direct FO loans only: the borrower must have participated in the business operations of a farm or ranch for at least three years. 68 C. Farm Ownership Outreach Programs 1. Farm Ownership Outreach Program is a program intended to increase access to FO loan funds for members of socially disadvantaged groups Small Farmer Outreach Training and Technical Assistance Program provides funds to eligible colleges and community-based organizations to assist small family farmers, particularly members of socially disadvantaged groups. 70 IV. The Loan Approval Process for All Direct FO and OL Loans Loan-making is a two-step process. Borrowers who demonstrate their eligibility (discussed above) must still get approval of the amounts they seek to borrow. Approval is itself a twostep process in which the borrower must demonstrate repayment ability and an ability to provide adequate security. 71 A. Repayment Ability. The question here is whether the borrower is likely to be able to make the scheduled payments on the loan. FSA will examine the borrower s Farm and Home plan and other cash flow projections to see whether the borrower presents a feasible plan. 1. A feasible plan is: 72 a plan based upon the applicant/borrower's records that show the farming operation's actual production and expenses. These records will be used 67 7 U.S.C. 2008h (b)(2)(a)(iii) U.S.C. 1922(b)(1); 7 C.F.R (a)(6) (2003) C.F.R (2003). See also 7 C.F.R. pt. 1910, subpart A, Exhibit B, Letter to Notify Socially Disadvantaged Applicants/Borrowers Regarding the Availability of Direct Farm Ownership (FO) Loans and the Acquisition/Leasing of FmHA Acquired Farmland (2003) C.F.R through (2003) C.F.R (2003) (FO loans); 7 C.F.R (OL loans) (2003) C.F.R , Feasible plan (2003) (FO loans) and 7 C.F.R , Feasible plan (2003) (OL loans).

17 See cautionary note on page 1. FSA Direct Loans Loan Making Page 15 along with realistic anticipated prices, including farm program payments when available, to determine that the income from the farming operation, along with any other reliable off farm income, will provide the income necessary for an applicant/borrower to at least be able to: a. Pay all operating expenses and all taxes which are due during the projected farm budget period; b. Meet necessary payments of all debts; and c. Provide living expenses for the family members of an individual borrower FSA should provide assistance to applicants preparing their Farm and Home plans and other cash flow projections needed for a direct loan application. 73 With regard to direct FO loans, local FSA employees are specifically required to provide technical assistance to socially disadvantaged individuals, including help completing applications and Farm and Home Plans A cash flow analyst may also provide helpful assistance if you are faced with questions relating to repayment ability. B. Adequate Security. The different security requirements for direct FO and OL loans are discussed earlier in these materials. In general: 1. FO loans must be secured by real estate worth at least 100 percent of the loan amount. FSA will require the borrower to offer real estate collateral worth 150 percent of the loan amount, if available OL loans must be secured by chattel (or real estate if necessary) worth 100 percent of the loan amount. 76 If available, FSA will take chattel or real estate worth 150 percent of the loan amount C.F.R (b) (2003) C.F.R (2003) C.F.R (2003) C.F.R (2003).