If you have a loan where farm land is being purchased to be farmed not sold or rented and you are relying on the proceeds from the crop production to repay your note and only relying on the farm land itself as your secondary source of repayment and the loan is less than $1,000,000, can we waive the certified appraisal and just do an evaluation?

Part of the exemptions is the loan must be a business loan. "Business loan means a loan or an extension of credit to any corporation, general or limited partnership, business trust, joint venture, pool, syndicate, sole proprietorship, or other business entity."

It is for business purposes as the borrower intends to farm the land as a part of his farm business. My concern is the crop income we are relying on could be considered or defined as rental income?

From the definition of business loan I always thought that the loan would have to be to a business entity, not an individual to qualify for the exemption. Can anyone else add to this?

The definition of "business loan" is provided in the following section of OCC bulletin 94-37b:

III. Section-by-Section Analysis

Sec. ____.2 Definitions.

(d) Business Loan
The agencies are adopting the proposed definition of ``business loan'' as a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, pool, syndicate, sole proprietorship (including an individual engaged in farming) ), or
other business entity. The definition is used in connection with the exemption for business loans of $1 million or less that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. Commenters suggested that the agencies amend the definition of business loan to include loans to individuals for business purposes and to permit use of the exemption when individuals lease real estate to a
related business. Loans to individuals are included in the definition of business loan as loans to sole proprietorships and other business entities. This exemption does not apply to loans to individuals that are consumer or personal loans. Therefore, the agencies do not believe
that it is necessary to amend the definition.

Some additional discussion and examples are in the appraisal exemption discussion in this bulletin but it's still a little bit unclear in some situations. I've just been looking to the purpose of the loan as well as the entity. If it's to an individual but for a business purpose I've been considering it a business loan based on a liberal reading of the definition in the OCC bulletin.

From an appraisal perspective, the crop is not considered real estate rental income.

That was me...you'd think I could remember to sign in.

The various regulatory agencies agree with you Appraiser Lady.

This from OCC Bulletin 94-37b:
Agricultural Lending.

The agencies do not view the sale of growing crops as the sale of real estate, nor as providing rental income derived from real estate. The agencies have concluded that transactions involving agricultural operations present no greater risk than other types of business operations, provided the primary source of repayment for the loan is
not sale of, or rental income derived from, real estate.

Thanks Frodo2 and Appraiser Lady. That was good information.