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Business or Farm Debt </p>
<p>If a business or farm does not qualify for one of these exclusions, the net worth is reported as an asset on the FAFSA. There is a separate question for such businesses and investment farms, as the net worth is adjusted to shelter part of the value of the asset. </p>
<p>The net worth is calculated by subtracting business or farm debt from the current fair market value of the business or farm (including the falue of land, buildings, inventory, equipment, machinery and livestock). To be considered a business or farm debt, the debt must be secured by the business or farm. If the debt uses something else as collateral, it does not offset the value of the business or farm. </p>
<p>For example, if the family used a home equity loan to capitalize the business, the balance on the loan may not be used to reduce the fair market value when computing the net worth, as the loan is secured by the home, not the business. The family could ask the college financial aid administrator to use “professional judgment” to allow the home equity loan to offset the business value. However, most colleges will not allow such an adjustment because the debt was not restricted to use for the business. Also, the value of the family’s principal place of residence is excluded on the FAFSA, making it difficult to justify allowing a debt against the home to offset other assets. </p>
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<p>If I use the home equity loan to buy a small business, I can not reduce the balance from the price I spent? Is that right?</p>