Criterion #2: No Convictions for Controlled Substances
For an entity applicant to meet this criterion, each individual owner of the entity may not have a conviction for a controlled substance. If any of the individual owners do have such a conviction, they may not be an owner for the duration of the loan. (Farm businesses may choose to make such a person an employee as an alternative, as no restriction exists within FSA on employing persons with convictions for controlled substances.)
Criterion #3: Possess Legal Capacity
For an entity applicant to meet this criterion, each individual owner of the entity must have the legal capacity to incur the obligation of the loan. Legal capacity can mean having reached the age of legal capacity, which is 18 years old. It can also mean mental capacity–all entity members must be mentally capable of understanding the applicable contract terms. If individual owners of the entity are under 18 years of age or do not have full mental capacity, the entity will be ineligible for the loan.
Mental capacity can be threatened if a person’s cognition is lacking due to age or mental illness along the lines of mania, delusions, or intoxication. This is unlikely to be an issue for an FSA loan, but all individual entity applicants must demonstrate mental capacity.
Entity applicants cannot have minor member-owners, either. Minors can apply for separate Youth loan applications via the FSA, but those loans are not covered in this guide.
Entity member-owners who are minors or mentally incapacitated will not be able to be a part of the entity that applies for an FSA FO loan unless and until they age into legal capacity or return to it mentally. Potential owners gaining capacity may be added to the business during the loan term after they reach capacity upon consultation with the loan officer and meeting all the other criteria.
Criterion #4: Acceptable Credit History
For an entity applicant to meet this criterion, each individual owner of the entity must have an acceptable credit history. This is because every individual owner of the entity must personally sign the loan. Creditworthiness demonstrates an ability to repay the loan. All owners on the entity application should be prepared to provide information about their credit history.
It can be hard to state with any certainty whether or not a specific individual will be found to be creditworthy. We can confidently say that a history of failing to repay debts, outstanding payments to the federal government, or any other federal debt is unacceptable. But things like foreclosures, judgments, and delinquent payments of the applicant, if they occurred at least 36 months (3 years) before the application and no recent similar situations have occurred, may be allowed. This is one situation where the owners involved may need to sit down with the loan officer for an honest conversation about whether ownership (and the loan application) can be amended if one of the owners is found to not be creditworthy.