Does anyone know of a qualification/criteria test that an operation must pass to be deemed a "small farm" for CRA. My research indicates there is not and persons with one cow or a garden could fit the definition and a whole array of loans could be reported under the catch-all Loans to Finance Agricultual Production and Other Loans to Farmers. I do not see such a test in the call report instructions either. Do you look to IRS guidelines? Am I missing something? HELP!!!!!!!!!!!!!!!!!!!!!!!!!

I just discussed this in another thread, but for giggles let’s do it again

When determining the classification of a loan, you have to look to the preponderance of issues, borrower, collateral, and purpose.

The call report does discuss farm loans as: Loans secured by farmland and improvements thereon, as evidenced by mortgages or other liens. Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland includes grazing or pastureland, whether tillable or not and whether wooded or not.

CRA GIR further discusses the issue by covering “Loans to finance agricultural production and other loans to farmers.” ….loans for the purpose of financing agricultural production. Include such loans whether secured (other than by real estate) or unsecured and whether made to farm and ranch owners and operators (including tenants) or to nonfarmers.

Include: Loans and advances made for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof and the breeding, raising, fattening or marketing of livestock.

On and on and on it goes

So when you’re thinking about this stuff, think above about the three considerations you must use when determining what a loan is.

Is one cow or a home garden grazing or pastureland? Well if the cow is in a small field, yes its probably logicaly on farmland. If the cow is tethered up to my back fence and I live on a small city block (my neighbors are probably complaining about the smell) then I really am not on grazing or pastureland am I?

If the collateral is my auto shop (where I’ve got the cow stored) or I have a small herb garden…again, is the auto shop land grazing or pastureland just because I’m stupid enough to park a cow in the back stall or grow edible herbs on land with oil spilled on it?

Is the loan secured with the herbs or the cow? Was the purpose to buy the cow or the herb starts? Well then you have to think again, yes it probably would be a farm loan if your collateral is one cow or a bunch of mint but how many of those do you have on the books.

Then take the borrower…look at my tax returns. Did I make any money on Bessie my family cow? Did I write off the dead mint when I forgot to water it? I’m not meeting the borrower consideration for farmer if I’m not telling the IRS I have some crops or a pretty cow out there am I? Practical thinking will determine I’m just a chick with some herbs and one fat cow I like to get fresh milk from for the cats.

So long story short, you take those three pieces of the story as your small farm test. If you’ve got land that qualifies or you take the item produced from the endeavor as collateral you have a farm loan in most cases. If you do a home equity loan to me and you count my one rhubarb plant (large as it may be) as a crop…well your bank has larger issues that classifying CRA loans correctly to be worried about