Difficulties in Coordinating Farm Assistance Programs Operated by Farmers Home Administration and Small Business Administration

CED-78-118: Published: May 25, 1978. Publicly Released: Oct 27, 1983.

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The Farmers Home Administration (FmHA) has traditionally been the primary federal agency making disaster and nondisaster loans to farmers. Public Law 94-305 amended the Small Business Act to include farmers in the definition of a small business concern, allowing the Small Business Administration (SBA) to provide disaster and nondisaster loans to farmers.

Both FmHA and SBA administer disaster loan programs to essentially the same target population. However, differences in the programs affect borrower eligibility, amounts and types of loans made, and terms and conditions of the loans and can result in an inequitable and confusing situation for farmers. A major difference is that FmHA cannot make loans to farmers who are able to obtain credit from other sources at reasonable rates and terms, whereas SBA can. The highly subsidized interest rates of disaster loans, coupled with the lack of a credit-elsewhere test, create a strong incentive for farmers to borrow from SBA rather than from other sources of credit. The use of SBA regular (nondisaster) programs by farmers has been limited however. A sample of disaster loan applicants was surveyed to determine their views on the loan programs. The majority of respondents were satisfied with the services provided by both FmHA and SBA under their disaster loan programs. Most said that the time it took to receive loan funds caused no financial hardship and that the benefits were worth the efforts made to obtain them.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: SBA no longer provides disaster assistance loans.

    Matter: Congress should decide whether or not it should be government policy to make disaster assistance loans to farmers who are able to obtain credit elsewhere. Once this decision is made, the Small Business Act should be amended so that SBA is no longer authorized to make disaster loans to farmers. Congress should also enact legislation to liberalize the eligibility requirements and increase the loan limits of FmHA regular farm loan programs. The Administrator, FmHA, should propose legislation to Congress to revise the agency's minimum loss eligibility criteria to make it more equitable. The Administrator, SBA, should request joint-payee checks for amounts of any disaster payments so that the payments may be applied against borrowers' loans.

 

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