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

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John H. Luke Team: General Accounting Office: Community and Economic Development Division Phone: (202) 275-6111