PART 613—ELIGIBILITY AND SCOPE OF FINANCING Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 2093, 2122, 2128, 2129, 2143, 2206a, 2211, 2212, 2213, 2243, 2252). Subpart A—Financing Under Titles I and II of the Farm Credit Act Source: 62 FR 4441, Jan. 30, 1997, unless otherwise noted. § 613.3000 Financing for farmers, ranchers, and aquatic producers or harvesters. (a) Definitions. (1) Bona fide farmer or rancher (2) Legal entity (3) Person (4) Producer or harvester of aquatic products (b) Eligible borrower. [62 FR 4441, Jan. 30, 1997, as amended at 73 FR 30475, May 28, 2008] § 613.3005 Lending objective. It is the objective of each bank and association, except for banks for cooperatives, to provide full credit, to the extent of creditworthiness, to the full-time bona fide farmer (one whose primary business and vocation is farming, ranching, or producing or harvesting aquatic products); and conservative credit to less than full-time farmers for agricultural enterprises, and more restricted credit for other credit requirements as needed to ensure a sound credit package or to accommodate a borrower's needs as long as the total credit results in being primarily an agricultural loan. However, the part-time farmer who needs to seek off-farm employment to supplement farm income or who desires to supplement off-farm income by living in a rural area and is carrying on a valid agricultural operation, shall have availability of credit for mortgages, other agricultural purposes, and family needs in the preferred position along with full-time farmers. Loans to farmers shall be on an increasingly conservative basis as the emphasis moves away from the full-time bona fide farmer to the point where agricultural needs only will be financed for the applicant whose business is essentially other than farming. Credit shall not be extended where investment in agricultural assets for speculative appreciation is a primary factor. § 613.3010 Financing for processing or marketing operations. (a) Eligible borrowers. (1) Is a bona fide farmer, rancher, or producer or harvester of aquatic products who regularly produces some portion of the throughput used in the processing or marketing operation; or (2) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under § 613.3000(b) own more than 50 percent of the voting stock or equity and regularly produce some portion of the throughput used in the processing or marketing operation; or (3) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under § 613.3000(b) own 50 percent or less of the voting stock or equity, regularly produce some portion of the throughput used in the processing or marketing operation and: (i) Exercise majority voting control over the legal entity; or (ii) Constitute a majority of the directors of a corporation, general partners of a limited partnership, or managing members of a limited liability company who exercise control over the legal entity by determining and overseeing the policies, business practices, management, and decision-making process of the legal entity; or (4) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under § 613.3000(b) meet all of the following criteria: (i) Own at least 25 percent of the voting stock or equity in the processing or marketing operation; (ii) Regularly produce 20 percent or more of the throughput used in the processing or marketing operation; (iii) Maintain representation on the board of directors or in the applicable management structure of the entity. (5) Is a legal entity not eligible under paragraph (a)(1) of this section that is a direct extension or outgrowth of an eligible borrower's operation and meets all of the following criteria: (i) The legal entity was created for the primary purpose of processing or marketing the eligible borrower's throughput and would not exist but for the eligible borrower's involvement, (ii) The legal entity fulfills a business need and supports the operation of the eligible borrower through product branding or other value-added business activity directly related to the operations of the eligible borrower, (iii) The legal entity and the eligible borrower coordinate to operate in a functionally integrated manner, and (iv) The legal entity regularly receives throughput produced by the eligible borrower representing either: (A) At least 20 percent of the throughput used by the legal entity in the processing or marketing operation; or (B) At least 50 percent of the eligible borrower's total output of the commodity processed or marketed. (b) Portfolio restrictions for certain processing and marketing loans. (1) Bank limitation. (2) Association limitation. (3) Calculation of outstanding retail loans. (c) Reporting requirements. (d) Institution policies. (1) Procedures on how, at or before the time a loan is made, the institution will document: (i) Eligible borrower ownership, control, throughput, integration of operations and other factors, as applicable, sufficient to establish eligibility of legal entities at the time a loan is made under this section; and (ii) Each legal entity's plan and intent for maintaining eligible borrower ownership, control, throughput, and integration of operations, as applicable, during the duration of the loan; (2) Procedures that encourage financing under paragraph (a)(4) of this section of credit-worthy entities whose operations directly benefit producers, have local community investment support and provide accessible ownership opportunities for local farmers and ranchers. (3) Procedures for determining functional integration for loans made under paragraph (a)(5) of this section that require consideration of all relevant facts and circumstances, which include the extent to which: (i) The operations share resources such as management, employees, facilities, and equipment; (ii) The operations are conducted in coordination with or reliance upon each other; and (iii) The eligible borrower and legal entity are dependent upon each other for economic success. (4) Portfolio restrictions necessary to comply with paragraph (b) of this section and any board-defined limits on financing provided under this section; and (5) Reporting requirements necessary to comply with paragraph (c) of this section and any board-defined reporting on financing provided under this section. [62 FR 4441, Jan. 30, 1997, as amended at 73 FR 30475, May 28, 2008] § 613.3020 Financing for farm-related service businesses. (a) Eligibility. (b) Purposes of financing. (1) All of the farm-related business activities of an eligible borrower who derives more than 50 percent of its annual income (as consistently measured on either a gross sales or net sales basis) from furnishing farm-related services that are directly related to the agricultural production of farmers and ranchers; or (2) Only the farm-related services activities of an eligible borrower who derives 50 percent or less of its annual income (as consistently measured on either a gross sales or net sales basis) from furnishing farm-related services that are directly related to the agricultural production of farmers and ranchers. (c) Limitation. [62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001] § 613.3030 Rural home financing. (a) Definitions. Rural homeowner (2) Rural home (3) Rural area (4) Moderately priced (i) Satisfies the criteria in section 8.0 of the Act pertaining to rural home loans that collateralize securities that are guaranteed by the Federal Agricultural Mortgage Corporation; or (ii) Is otherwise determined to be moderately priced for housing values for the rural area where it is located, as documented by data from a credible, independent, and recognized national or regional source, such as a Federal, State, or local government agency, or an industry source. Housing values at or below the 75th percentile of values reflected in such data will be deemed moderately priced. (b) Eligibility. (c) Purposes of financing. (d) Portfolio limitations. (2) The aggregate of rural home loans made by each direct lender association shall not exceed 15 percent of the total of its outstanding loans at the end of its preceding fiscal year, except with the prior approval of its funding bank. (3) The aggregate of rural home loans made by all direct lender associations that are funded by the same Farm Credit bank shall not exceed 15 percent of the total outstanding loans of all such associations at the end of the funding bank's preceding fiscal year. [62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001] Subpart B—Financing for Banks Operating Under Title III of the Farm Credit Act Source: 62 FR 4442, Jan. 30, 1997, unless otherwise noted. § 613.3100 Domestic lending. (a) Definitions. (1) Cooperative (i) Process, prepare for market, handle, or market farm or aquatic products; (ii) Purchase, test, grade, process, distribute, or furnish farm or aquatic supplies; or (iii) Furnish business and financially related services to its members. (2) Farm or aquatic supplies and farm or aquatic business services (3) Public utility (4) Rural area (5) Service cooperative (b) Cooperatives and other entities that serve agricultural or aquatic producers Eligibility of cooperatives. (i) Unless the bank's board of directors establishes by resolution a higher voting control threshold for any type of cooperative, the percentage of voting control of the cooperative held by farmers, ranchers, producers or harvesters of aquatic products, or cooperatives shall be 80 percent except: (A) Sixty (60) percent for a service cooperative; (B) Sixty (60) percent for local farm supply cooperatives that have historically served the needs of a community that would not be adequately served by other suppliers and have experienced a reduction in the percentage of membership by agricultural or aquatic producers due to changed circumstances beyond their control; and (C) Sixty (60) percent for local farm supply cooperatives that provide or will provide needed services to a community, and are or will be in competition with a cooperative specified in § 613.3100(b)(1)(i)(B); (ii) The cooperative deals in farm or aquatic products, or products processed therefrom, farm or aquatic supplies, farm or aquatic business services, or financially related services with or for members in an amount at least equal in value to the total amount of such business it transacts with or for non-members, excluding from the total of member and non-member business, transactions with the United States, or any agencies or instrumentalities thereof, or services or supplies furnished by a public utility; and (iii) The cooperative complies with one of the following two conditions: (A) No member of the cooperative shall have more than one vote because of the amount of stock or membership capital owned therein; or (B) The cooperative restricts dividends on stock or membership capital to the maximum percentage per year permitted by applicable state law. (iv) Any cooperative that has received a loan from a bank for cooperatives or an agricultural credit bank shall, without regard to the requirements in paragraph (b)(1) of this section, continue to be eligible for as long as more than 50 percent (or such higher percentage as is established by the bank board) of the voting control of the cooperative is held by farmers, ranchers, producers or harvesters of aquatic products, or other eligible cooperatives. (2) Other eligible entities. (i) Any legal entity that holds more than 50 percent of the voting control of a cooperative that is an eligible borrower under paragraph (b)(1) of this section and uses the proceeds of the loan to fund the activities of its cooperative subsidiary on the terms and conditions specified by the bank; (ii) Any legal entity in which an eligible cooperative (or a subsidiary or other entity in which an eligible cooperative has an ownership interest) has an ownership interest, provided that (iii) Any creditworthy private entity operated on a non-profit basis that satisfies the requirements for a service cooperative and complies with the requirements of either paragraphs (b)(1)(i)(A) and (b)(1)(iii) of this section, or paragraph (b)(1)(iv) of this section, and any subsidiary of such entity. An entity that is eligible to borrow under this paragraph shall be organized to benefit agriculture in furtherance of the welfare of the farmers, ranchers, and aquatic producers or harvesters who are its members. (c) Electric and telecommunication utilities Eligibility. (i) Electric and telephone cooperatives as defined by section 3.8(a)(4)(A) of the Act that satisfy the eligibility criteria in paragraph (b)(1) of this section; (ii) Cooperatives and other entities that: (A) Have received a loan, loan commitment, insured loan, or loan guarantee from the Rural Utilities Service of the United States Department of Agriculture to finance rural electric and telecommunication services; (B) Have received a loan or a loan commitment from the Rural Telephone Bank of the United States Department of Agriculture; or (C) Are eligible under the Rural Electrification Act of 1936, as amended, for a loan, loan commitment, or loan guarantee from the Rural Utilities Service or the Rural Telephone Bank. (iii) The subsidiaries of cooperatives or other entities that are eligible under paragraph (c)(1)(ii) of this section. (iv) Any legal entity that holds more than 50 percent of the voting control of any public utility that is an eligible borrower under paragraph (c)(1)(ii) of this section, and uses the proceeds of the loan to fund the activities of the eligible subsidiary on the terms and conditions specified by the bank. (v) Any legal entity in which an eligible utility under paragraph (c)(1)(ii) of this section (or a subsidiary or other entity in which an eligible utility under paragraph (c)(1)(ii) has an ownership interest) has an ownership interest, provided that (2) Purposes for financing. (d) Water and waste disposal facilities Eligibility. (2) Purposes for financing. (e) Domestic lessors. [62 FR 4442, Jan. 30, 1997; 62 FR 33746, June 23, 1997, as amended at 69 FR 43514, July 21, 2004; 71 FR 65386, Nov. 8, 2006] § 613.3200 International lending. (a) Definitions. (1) Agricultural supply (i) A farm supply; and (ii) Agriculture-related processing equipment, agriculture-related machinery, and other capital goods related to the storage or handling of agricultural commodities or products. (2) Farm supply (b) Import transactions. (1) An eligible cooperative as defined by § 613.3100(b); (2) A counterparty with respect to a specific import transaction with a voting stockholder of the bank for the substantial benefit of the shareholder; and (3) Any foreign or domestic legal entity in which eligible cooperatives hold an ownership interest. (c) Export transactions. (1) Finance the export of agricultural commodities and products therefrom, aquatic products, or agricultural supplies that are not originally sourced from an eligible cooperative; and (2) At least 95 percent of the loan amount is not guaranteed by a department, agency, bureau, board, or commission of the United States or a corporation that is wholly owned directly or indirectly by the United States. (d) International business operations. (e) Restrictions. (2) A bank for cooperatives or agricultural credit bank shall not finance the relocation of any plant or facility from the United States to a foreign country. [62 FR 4442, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004] Subpart C—Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A of the Act § 613.3300 Participations and other interests in loans to similar entities. (a) Definitions. Participate participation, (2) Similar entity (b) Similar entity transactions. (c) Restrictions. (1) Lending limits Farm Credit banks operating under title I of the Act and direct lender associations. (A) Ten (10) percent of its total capital; or (B) Twenty-five (25) percent of its total capital if a majority of voting stockholders voting of the respective Farm Credit bank or direct lender association so approve. (ii) Farm Credit banks operating under title III of the Act. (2) Percentage held in the principal amount of the loan. (3) Portfolio limitations. (d) Approval by other Farm Credit System institutions. [62 FR 4444, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004; 75 FR 18743, Apr. 12, 2010]