By TIM THORNBERRY
Kentucky Correspondent FRANKFORT, Ky. — It is a familiar scenario to many farmers: Borrow money from the bank to cover the growing season’s expenses and pay it back once the crop sells.
For many generations that has worked for the farmer and the banker – but, in today’s economy, coupled with many changes on the farm, those farmers and bankers have to come up with more innovative ways to meet financial needs.
Fortunately there are still options in place. Michael Duckworth, a former county extension agent now in charge of agricultural loans at the Citizens Commerce Bank in Woodford County, said even with credit concerns there are still ways for farmers to get their loans.
“We’re seeing expansion of operating lines and have extended operating credit to get the crops in and certainly to get tobacco stripped and ready to market, and get the corn harvest out,” he said. “But I think that’s where you’ll find the strength of a community bank. You just have to sit down and work through the current situation.”
That doesn’t mean it won’t be difficult. “It is tough, particularly for agriculture borrowers right now – they’re not going to have as much money at the end of the year to pay back loans, so structures and terms are going to have to be looked at,” Duckworth said.
“I think it all has to be put out on the table. We’re going to try to provide to our borrowers like we have for years.”
He added that forward planning is a bit scary right now, using fuel prices as an example. The cost of fuel and fertilizer has dropped enormously in the last 60 days; this is positive, but it is uncertain if those prices will stay in place, making it more difficult to plan ahead. He also said instability in the commodities markets makes planning harder.
Perhaps those having the hardest time seeking financial help are young farmers looking to get into farming or expand their existing operations. There are options for them as well, such as the Beginning Farmer Loan Program offered by the Kentucky Agricultural Finance Corp. (KAFC). The program helps those individuals with farming experience who want to develop, expand or buy into a farming operation.
“We believe in these times of tighter-than-normal credit, our programs through Ag Finance can be a benefit to farmers and especially to beginning farmers,” said Roger Thomas, executive director of the Governor’s Office of Agricultural Policy (GOAP), the agency which oversees the KAFC.
“Earlier this year when we increased the loan limits for the Beginning Farmer Loan Program from $100,000 to $250,000, I think that spurred some increased activity and interest with young farmers.”
Thomas also said despite a tight budget, they are optimistic that as the program continues to grow, so will support for it.
“We want to do everything we can and invest as many resources as possible, especially in beginning farmer operations,” he said.
The KAFC also offers the Agricultural Infrastructure Loan Program, which helps producers who have a history of tobacco involvement finance long-term projects that will improve their financial viability. Both this and Beginning Farmer work with community lenders to help alleviate some of the risk of loaning money.
Bill McCloskey, KAFC director of financial services, said the programs are more valuable than ever right now, in times of uncertain financial markets.
“Our below-market loan programs are critical now in these economic times because ag lenders are looking for ways to share the risk, and we can do that,” he said. “The Infrastructure and Beginning Farmer Loan programs were set up as participation programs for several reasons; one is that we did not want to compete with other ag lenders in the state, and we did not want to create a huge administration for the programs.”
Some of the guidelines of Beginning Farmer include having not operated a farm or ranch for more than 10 years; participation in the business operation of a farm for at least three years; and an off-farm income of less than $75,000 annually, with total household off-farm income of less than $100,000 annually.
KAFC will facilitate loans of up to $250,000 with a 15-year limit and a 2 percent per annum interest rate. The lender must agree to service the KAFC loan for no more than 1 percent for the term of the loan.
Some guidelines for Agricultural Infrastructure include a fixed interest rate on the KAFC portion of loan at 2 percent annually for life of loan for producers documenting tobacco involvement, and 4 percent for those without documentation. Also, lenders can charge administrative costs not to exceed three-quarters of 1 percent on the KAFC portion of the loan, which must be reflected in the blended rate offered to borrower.
Applicants must receive at least 20 percent of gross income from farming for previous two years as evidenced by federal income tax returns.
For more information on these programs, visit the GOAP website at http://agpolicy.ky.gov/index.shtml |
