USC Subchapter II

USC Subchapter II
in effect

7 U.S.C. § 1941 Persons eligible for loans

(a) In general(1) Eligibility requirementsThe Secretary may make and insure loans under this subchapter to farmers and ranchers in the United States, and to farm cooperatives and private domestic corporations, partnerships, joint operations, trusts, limited liability companies, and such other legal entities as the Secretary considers appropriate, that are controlled by farmers and ranchers and engaged primarily and directly in farming or ranching in the United States, subject to the conditions specified in this section. To be eligible for such loans, applicants who are individuals, or, in the case of cooperatives, corporations, partnerships, joint operations, trusts, limited liability companies, and such other legal entities, individuals holding a majority interest in such entity, must (A) be citizens of the United States, (B) for direct loans only, have either training or farming experience that the Secretary determines is sufficient to assure reasonable prospects of success in the proposed farming operations, taking into consideration all farming experience of the applicant, without regard to any lapse between farming experiences, (C) be or will become operators of not larger than family farms (or in the case of cooperatives, corporations, partnerships, joint operations, trusts, limited liability companies, and such other legal entities in which a majority interest is held by individuals who are related by blood or marriage, as defined by the Secretary, such individuals must be or will become either owners or operators of not larger than a family farm and at least one such individual must be or will become an operator of not larger than a family farm or, in the case of holders of the entire interest who are related by blood or marriage and all of whom are or will become farm operators, the ownership interest of each such holder separately constitutes not larger than a family farm, even if their interests collectively constitute larger than a family farm, as defined by the Secretary), and (D) be unable to obtain sufficient credit elsewhere to finance their actual needs at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near which the applicant resides for loans for similar purposes and periods of time. In addition to the foregoing requirements of this subsection, in the case of corporations, partnerships, joint operations, trusts, limited liability companies, and such other legal entities, the family farm requirement of subparagraph (C) of the preceding sentence shall apply as well to the farm or farms in which the entity has an operator interest and the requirement of subparagraph (D) of the preceding sentence shall apply as well to the entity in the case of cooperatives, corporations, partnerships, joint operations, trusts, limited liability companies, and such other legal entities. (2) Special ruleAn entity that is an operator described in paragraph (1) that is owned, in whole or in part, by other entities, shall be considered to meet the direct ownership requirement imposed under paragraph (1) if at least 75 percent of the ownership interests of each embedded entity of the entity is owned directly or indirectly by the individuals that own the family farm. (b) Rural youths in 4–H Clubs, Future Farmers of America, etc.(1) Loans may also be made under this subchapter without regard to the requirements of clauses (2) and (3) of subsection (a) to youths to enable them to operate enterprises in connection with their participation in 4–H Clubs, Future Farmers of America, and similar organizations. (2) A person receiving a loan under this subsection who executes a promissory note therefor shall thereby incur full personal liability for the indebtedness evidenced by such note in accordance with its terms free of any disability of minority. (3) For loans under this subsection the Secretary may accept the personal liability of a cosigner of the promissory note in addition to the borrowers’ personal liability. (4) Youth enterprises not farming or ranching.—The operation of an enterprise by a youth under this subsection shall not be considered the operation of a farm or ranch under this chapter. (5) Equitable considerations for default.—(A) Debt forgiveness.—(i) In general.—The Secretary may, on a case-by-case basis, provide debt forgiveness to a borrower for a loan made under this subsection if the borrower was unable to timely repay the loan due to circumstances beyond the control of the borrower, as determined by the Secretary, including any natural disaster, act of terrorism, or other man-made disaster that results in an inordinate level of damage or disruption severely affecting the borrower. (ii) Eligibility for future loans.—Notwithstanding any other provision of law, debt forgiveness provided under this subparagraph shall not be used by any Federal agency in determining the eligibility of the borrower for any loan made or guaranteed by the agency. (B) Education loans.—Notwithstanding any other provision of law, if a borrower becomes delinquent or is provided with debt forgiveness with respect to a youth loan made under this subsection, the borrower shall not become ineligible, as a result of the delinquency or debt forgiveness, to receive loans and loan guarantees from the Federal Government to pay for education expenses of the borrower. (c) Direct loans(1) In generalSubject to paragraphs (3) and (4), the Secretary may make a direct loan under this subchapter only to a farmer or rancher who—(A) is a qualified beginning farmer or rancher; (B) has not received a previous direct operating loan made under this subchapter; or (C) has received a previous direct operating loan made under this subchapter during 6 or fewer years. (2) Definition of direct operating loanIn this subsection, the term “direct operating loan” does not include—(A) a loan made to a youth under subsection (b); or (B) a microloan made to a beginning farmer or rancher or a veteran farmer or rancher (as defined in section 2279(e) 11 See References in Text note below. of this title). (3) Transition ruleIf, as of April 4, 1996, a farmer or rancher has received a direct operating loan under this subchapter during each of 4 or more previous years, the borrower shall be eligible to receive a direct operating loan under this subchapter during 3 additional years after April 4, 1996. (4) Waivers(A) Farm and ranch operations on tribal landsThe Secretary shall waive the limitation under paragraph (1)(C) or (3) for a direct loan made under this subchapter to a farmer or rancher whose farm or ranch land is subject to the jurisdiction of an Indian tribe and whose loan is secured by 1 or more security instruments that are subject to the jurisdiction of an Indian tribe if the Secretary determines that commercial credit is not generally available for such farm or ranch operations. (B) Other farm and ranch operationsOn a case-by-case determination not subject to administrative appeal, the Secretary may grant a borrower a waiver, 1 time only for a period of 2 years, of the limitation under paragraph (1)(C) or (3) for a direct operating loan if the borrower demonstrates to the satisfaction of the Secretary that—(i) the borrower has a viable farm or ranch operation; (ii) the borrower applied for commercial credit from at least 2 commercial lenders; (iii) the borrower was unable to obtain a commercial loan (including a loan guaranteed by the Secretary); and (iv) the borrower successfully has completed, or will complete within 1 year, borrower training under section 2006a of this title (from which requirement the Secretary shall not grant a waiver under section 2006a(f) of this title). (5) Annual report on term limits on direct operating loans(A) In generalThe Secretary shall prepare a report annually that describes—(i) the status of the direct operating loan program of the Department of Agriculture; and (ii) the impact of term limits on direct loan borrowers. (B) Demographic information(i) In generalThe report shall provide a demographic breakdown, on a State-by-State basis, of—(I) all direct loan borrowers; and (II) borrowers that have reached the eligibility limit for direct lending programs during the previous calendar year. (ii) Demographic informationThe available demographic information shall include, to the maximum extent practicable, a description of race or ethnicity, gender, age, type of farm or ranch, financial classification, number of years of indebtedness, veteran status, and other similar information, as determined by the Secretary. (C) Additional contentIn addition to information described in subparagraph (B), the report shall provide—(i) a demographic analysis of the borrowers impacted by term limits; (ii) information on the conditions impacting the direct lending portfolio of the Department of Agriculture, including impacts by region and agriculture sector, and credit availability within those regions and sectors; (iii) to the maximum extent practicable, information on the status of borrower operations impacted by term limits; and (iv) recommendations, if appropriate, to address any identifiable unmet credit needs. (D) SubmissionThe Secretary shall—(i) annually submit to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate a copy of the report; and (ii) make the report available to the public, including posting the report on the website of the Department of Agriculture.

7 U.S.C. § 1942 Purposes of loans

(a) In generalA direct loan (including a microloan, as defined by the Secretary) may be made under this subchapter only for—(1) paying the costs incident to reorganizing a farm or ranch for more profitable operation; (2) purchasing livestock, poultry, or farm or ranch equipment; (3) purchasing feed, seed, fertilizer, insecticide, or farm or ranch supplies, or to meet other essential farm or ranch operating expenses, including cash rent; (4) financing land or water development, use, or conservation; (5) paying loan closing costs; (6) assisting a farmer or rancher in changing the equipment, facilities, or methods of operation of a farm or ranch to comply with a standard promulgated under section 655 of title 29 or a standard adopted by a State under a plan approved under section 667 of title 29, if the Secretary determines that without assistance under this paragraph the farmer or rancher is likely to suffer substantial economic injury in complying with the standard; (7) training a limited-resource borrower receiving a loan under section 1934 of this title in maintaining records of farming and ranching operations; (8) training a borrower under section 2006a of this title; (9) refinancing the indebtedness of a borrower, if the borrower—(A) has refinanced a loan under this subchapter not more than 4 times previously; and (B)(i) is a direct loan borrower under this chapter at the time of the refinancing and has suffered a qualifying loss because of a natural disaster declared by the Secretary under this chapter or a major disaster or emergency designated by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.); or (ii) is refinancing a debt obtained from a creditor other than the Secretary; or (10) providing other farm, ranch, or home needs, including family subsistence. (b) Guaranteed loansA loan may be guaranteed under this subchapter only for—(1) paying the costs incident to reorganizing a farm or ranch for more profitable operation; (2) purchasing livestock, poultry, or farm or ranch equipment; (3) purchasing feed, seed, fertilizer, insecticide, or farm or ranch supplies, or to meet other essential farm or ranch operating expenses, including cash rent; (4) financing land or water development, use, or conservation; (5) refinancing indebtedness; (6) paying loan closing costs; (7) assisting a farmer or rancher in changing the equipment, facilities, or methods of operation of a farm or ranch to comply with a standard promulgated under section 655 of title 29 or a standard adopted by a State under a plan approved under section 667 of title 29, if the Secretary determines that without assistance under this paragraph the farmer or rancher is likely to suffer substantial economic injury due to compliance with the standard; (8) training a borrower under section 2006a of this title; or (9) providing other farm, ranch, or home needs, including family subsistence. (c) Hazard insurance requirement(1) In generalAfter the Secretary makes the determination required by paragraph (2), the Secretary may not make a loan to a farmer or rancher under this subchapter unless the farmer or rancher has, or agrees to obtain, hazard insurance on the property to be acquired with the loan. (2) DeterminationNot later than 180 days after April 4, 1996, the Secretary shall determine the appropriate level of insurance to be required by paragraph (1). (d) Private reserve(1) In generalNotwithstanding any other provision of this chapter, the Secretary may reserve a portion of any loan made under this subchapter to be placed in an unsupervised bank account that may be used at the discretion of the borrower for the basic family needs of the borrower and the immediate family of the borrower. (2) Limit on size of the reserveThe size of the reserve shall not exceed the least of—(A) 10 percent of the loan; (B) $5,000; or (C) the amount needed to provide for the basic family needs of the borrower and the borrower’s immediate family for 3 calendar months. (e) Valuation of local or regional crops(1) In generalThe Secretary shall develop ways to determine unit prices (or other appropriate forms of valuation) for crops and other agricultural products, the end use of which is intended to be in locally or regionally produced agricultural food products, to facilitate lending to local and regional food producers. (2) Price historyThe Secretary shall implement a mechanism for local and regional food producers to establish price history for the crops and other agricultural products produced by local and regional food producers.

7 U.S.C. § 1943 Limitations on amount of operating loans

(a) In generalThe Secretary shall make or insure no loan under this subchapter—(1) that would cause the total principal indebtedness outstanding at any one time for loans made under this subchapter to any one borrower to exceed, in the case of a loan other than a loan guaranteed by the Secretary, $400,000, or, in the case of a loan guaranteed by the Secretary, $1,750,000 (increased, beginning with fiscal year 2019, by the inflation percentage applicable to the fiscal year in which the loan is guaranteed and reduced by the unpaid indebtedness of the borrower on loans under the sections specified in section 1925 of this title that are guaranteed by the Secretary); or (2) for the purchasing or leasing of land other than for cash rent, or for carrying on any land leasing or land purchasing program. (b) Inflation percentageFor purposes of this section, the inflation percentage applicable to a fiscal year is the percentage (if any) by which—(1) the average of the Prices Paid By Farmers Index (as compiled by the National Agricultural Statistics Service of the Department of Agriculture) for the 12-month period ending on July 31 of the immediately preceding fiscal year; exceeds (2) the average of such index (as so defined) for the 12-month period that immediately precedes the 12-month period described in paragraph (1). (c) Microloans(1) In generalSubject to paragraph (2), the Secretary may establish a program to make or guarantee microloans. (2) LimitationsThe Secretary shall not make or guarantee a microloan under this subsection that would cause the total principal indebtedness outstanding at any 1 time for microloans made under this subsection to any 1 borrower to exceed $50,000. (3) ApplicationsTo the maximum extent practicable, the Secretary shall limit the administrative burdens and streamline the application and approval process for microloans under this subsection. (4) Cooperative lending pilot projects(A) In generalSubject to subparagraph (B), during each of the 2014 through 2023 fiscal years, the Secretary may carry out a pilot project to make loans to community development financial institutions, as the Secretary determines appropriate—(i) to make or guarantee microloans consistent with the terms provided under this subsection; and (ii) to provide business, financial, marketing, and credit management services to microloan borrowers. (B) RequirementsPrior to making a loan to an institution described in subparagraph (A), the Secretary shall—(i) review and approve—(I) the loan loss reserve fund for microloans established by the institution; and (II) the underwriting standards for microloans of the institution; and (ii) establish such other requirements for making a loan to the institution as the Secretary determines necessary. (C) EligibilityTo be eligible for a loan under subparagraph (A), an institution described in subparagraph (A) shall, as determined by the Secretary—(i) have the legal authority necessary to carry out the actions described in subparagraph (A); (ii) have a proven track record of successfully assisting agricultural borrowers; and (iii) have the services of a staff with appropriate loan making and servicing expertise. (D) OversightNot less often than annually, on a date determined by the Secretary, an institution that has a loan under this paragraph shall provide to the Secretary such information as the Secretary may require to ensure that the services provided by the institution are serving the purposes of this subsection. (E) LimitationThe Secretary shall not make more than $10,000,000 in loans under this paragraph in any fiscal year.

7 U.S.C. § 1944 Soil conservation district loans; limitation; purchase of conservation equipment

Loans aggregating not more than $500,000 in any one year may also be made to soil conservation districts which cannot obtain necessary credit elsewhere upon reasonable terms and conditions for the purchase of equipment customarily used for soil conservation purposes.

7 U.S.C. § 1946 Liability of borrower

(a) Determination of interest rates(1) The Secretary shall make all loans under this subchapter upon the full personal liability of the borrower and upon such security as the Secretary may prescribe. The interest rates on such loans, except for guaranteed loans and loans as provided in paragraphs (2) and (3),11 See References in Text note below. shall be as determined by the Secretary, but not in excess of the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans, plus an additional charge not to exceed 1 per centum as determined by the Secretary, which charge shall be deposited in the Rural Development Insurance Fund or the Agricultural Credit Insurance Fund, as appropriate, and adjusted to the nearest one-eighth of 1 per centum. The interest rate on any guaranteed loan made under this subchapter shall be such rate as may be agreed upon by the borrower and lender, but not in excess of a rate as may be determined by the Secretary. (2) The interest rate on a microloan to a beginning farmer or rancher or veteran farmer or rancher (as defined in section 2279(e) 1 of this title), or any loan (other than a guaranteed loan) to a low income, limited resource borrower under this subchapter shall not be—(A) greater than the sum of—(i) an amount that does not exceed one-half of the current average market yield on outstanding marketable obligations of the United States with maturities of 5 years; and (ii) an amount not exceeding 1 percent per year, as the Secretary determines is appropriate; or (B) less than 5 percent per year. (b) Payment period; consolidation and rescheduling of loansLoans made under this subchapter shall be payable in not to exceed seven years. The Secretary may consolidate or reschedule outstanding loans for payment over a period not to exceed seven years (or, in the case of loans for farm operating purposes, fifteen years) from the date of such consolidation or rescheduling, and the amount of unpaid principal and interest of the prior loans so consolidated or rescheduled shall not create a new charge against any loan levels authorized by law. A new loan may be included in a consolidation. Such new loan shall be charged against any loan level authorized by law. Except as otherwise provided for farm loans under section 1981b of this title, the interest rate on such consolidated or rescheduled loans, other than guaranteed loans, may be changed by the Secretary to a rate not to exceed the rate being charged for loans made under this subchapter at the time of the consolidation or rescheduling. The interest rate on any guaranteed loan under this subchapter that may be consolidated or rescheduled for payment shall be such rate as may be agreed upon by the borrower and the lender, but not in excess of a rate as may be determined by the Secretary. (c) Line-of-credit loans(1) In generalA loan made or guaranteed by the Secretary under this subchapter may be in the form of a line-of-credit loan. (2) TermA line-of-credit loan under paragraph (1) shall terminate not later than 5 years after the date that the loan is made or guaranteed. (3) EligibilityFor purposes of determining eligibility for a farm operating loan under this subchapter, each year during which a farmer or rancher takes an advance or draws on a line-of-credit loan the farmer or rancher shall be considered to have received an operating loan for 1 year. (4) Termination of delinquent loansIf a borrower does not pay an installment on a line-of-credit loan on schedule, the borrower may not take an advance or draw on the line-of-credit, unless the Secretary determines that—(A) the borrower’s failure to pay on schedule was due to unusual conditions that the borrower could not control; and (B) the borrower will reduce the line-of-credit balance to the scheduled level at the end of—(i) the production cycle; or (ii) the marketing of the borrower’s agricultural products. (5) Agricultural commoditiesA line-of-credit loan may be used to finance the production or marketing of an agricultural commodity that—(A) is eligible for a price support program of the Department of Agriculture; or (B) was eligible for a price support program of the Department of Agriculture on the day before April 4, 1996.

7 U.S.C. § 1949 Graduation of borrowers with operating loans or guarantees to private commercial credit

The Secretary shall establish a plan, in coordination with activities under sections 2006a, 2006b, 2006c, and 2006d of this title, to encourage each borrower with an outstanding loan under this subchapter or with respect to whom there is an outstanding guarantee under this subchapter to graduate to private commercial or other sources of credit.

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