TITLE 7 - US CODE - SUBCHAPTER II - OPERATING LOANS

7 USC 1941 - Persons eligible for loans

(a) In general 
The 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, and limited liability companies 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, and limited liability companies, individuals holding a majority interest in such entity, must
(1)  be citizens of the United States,
(2)  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,
(3)  be or will become operators of not larger than family farms (or in the case of cooperatives, corporations, partnerships, joint operations, trusts, and limited liability companies 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
(4)  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, and limited liability companies, the family farm requirement of clause (3) 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 clause (4) of the preceding sentence shall apply as well to the entity in the case of cooperatives, corporations, partnerships, joint operations, trusts, and limited liability companies.
(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) of this section to youths who are rural residents to enable them to operate enterprises in connection with their participation in 4H 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.
(c) Direct loans 

(1) In general 
Subject 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) Youth loans 
In this subsection, the term direct operating loan shall not include a loan made to a youth under subsection (b) of this section.
(3) Transition rule 
If, 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 lands 
The 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 operations 
On 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).

7 USC 1942 - Purposes of loans

(a) In general 
A direct loan 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 loans 
A 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 general 
After 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) Determination 
Not 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 general 
Notwithstanding 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 reserve 
The 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 borrowers immediate family for 3 calendar months.

7 USC 1943 - Limitations on amount of operating loans

(a) In general 
The 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, $300,000, or, in the case of a loan guaranteed by the Secretary, $700,000 (increased, beginning with fiscal year 2000, 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 percentage 
For 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 August 31 of the immediately preceding fiscal year; exceeds
(2) the average of such index (as so defined) for the 12-month period ending on August 31, 1996.

7 USC 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 USC 1945 - Repealed. Pub. L. 104127, title VI, 613, Apr. 4, 1996, 110 Stat. 1089

Section, Pub. L. 87–128, title III, § 315, Aug. 8, 1961, 75 Stat. 311, authorized Secretary to participate in certain loans made under this subchapter.

7 USC 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 provided in paragraphs (2) and (3),[1] 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 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 loans 
Loans 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 general 
A loan made or guaranteed by the Secretary under this subchapter may be in the form of a line-of-credit loan.
(2) Term 
A 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) Eligibility 
For 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 loans 
If 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 borrowers 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 borrowers agricultural products.
(5) Agricultural commodities 
A 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.
[1] See References in Text note below.

1947, 1948. Repealed. Pub. L. 104127, title VI, 615, 616(a), Apr. 4, 1996, 110 Stat. 1090

Section 1947, Pub. L. 87–128, title III, § 317, as added Pub. L. 92–419, title I, § 123, Aug. 30, 1972, 86 Stat. 665, related to insured operating loans. Section 1948, Pub. L. 87–128, title III, § 318, as added Pub. L. 102–554, § 8, Oct. 28, 1992, 106 Stat. 4146, related to special assistance to certain qualified beginning farmers and ranchers.

7 USC 1949 - Graduation of borrowers with operating loans or guarantees to private commercial credit

(a) Graduation plan 
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.
(b) Limitation on period borrowers are eligible for guaranteed assistance 

(1) General rule 
Subject to paragraph (2), the Secretary shall not guarantee a loan under this subchapter for a borrower for any year after the 15th year that a loan is made to, or a guarantee is provided with respect to, the borrower under this subchapter.
(2) Transition rule 
If, as of October 28, 1992, a farmer or rancher has received a direct or guaranteed operating loan under this subchapter during each of 10 or more previous years, the borrower shall be eligible to receive a guaranteed operating loan under this subchapter during 5 additional years after October 28, 1992.