Tuesday, October 7th, 2008
Credit crunch to hit farms
By Nancy Allen
Local farmers may need to turn to USDA loans more if local banks tighten their credit in response to the ongoing U.S. financial meltdown.
County Farm Service Agency (FSA) offices administer USDA farm programs, including a variety of low interest loan programs.
"FSA could see a huge increase in ag lending, not tomorrow, not next month, but as it trickles down to cornfield county," Mercer County FSA Executive Director Chris Gibbs said recently.
Celina accountant Rick Mosier said he feels local banks and financial institutions are still "sound and solid," but rather it is the larger institutions that are in trouble during the nation's financial crisis.
This may result in a tightening of credit locally, a local bank official says.
Rod Stover, the Celina Citizens National Bank president, said the credit tightening won't be apparent right away. He says banks will become more choosey with whom they loan money to and pick those with the least amount of risk.
Tina Mellinger, USDA farm loan officer for Mercer, Auglaize, Allen, Shelby and Van Wert counties, said her office has a good working relationship with local banks and expects to participate more with them in the future to help "offset that risk."
It is common for farmers to take out annual operating loans, either through commercial banks or through FSA if they have difficulty coming up with enough money to put down, she said. These annual loans are used most often to pay for input costs such as fuel, fertilizer, seed or equipment purchases.
"Yes, a lot of them take out annual operating loans from local banks. It's a money in money out thing," Mellinger said. "It's very typical especially with higher input costs."
Mellinger said the Mercer County FSA office likely will see an increase in guaranteed loans. With a guaranteed loan, a local bank contacts the FSA office if the person applying does not have enough money down. A USDA guaranteed loan guarantees USDA will pay 90 percent of the loan if it is defaulted on, she explained.
Most USDA loans have lower interest and longer terms to pay them back than commercial bank loans.
Mellinger said it is common for the Mercer FSA office to do what are called joint loans, whereby local commercial banks and FSA share a percentage of the loan.
Last year the Mercer County FSA office administered $437,100 in guaranteed loans to two producers. Also last year, the office administered $1.1 million in joint direct loans to nine producers who purchased farms.
