6/22/2013 7:00 AM
By Dick Wanner Reporter
LANCASTER, Pa. — Lancaster County farmers who depend at least partly on government-backed business loans should find it no harder — but no easier — to secure financing in the year ahead, even though leaders in Washington are wrestling with each other about higher-profile issues.
Some provisions in the new Farm Bill — food stamps and support payments — are very visible and every part of the bill is subject to change.
The USDA’s Farm Service Agency isn’t in anybody’s crosshairs, and available funds could go up or down. Neither direction would surprise Don Delp, director for Pennsylvania’s FSA District 3, which includes 18 counties in the southcentral region of the state.
Speaking to a June 13 breakfast meeting of the Lancaster Chamber of Commerce and Industry Ag Issues Forum, Delp sounded no note of alarm for the coming fiscal year, which begins Oct. 1. The ag issues group meets regularly throughout the year and consists of individuals and businesses who serve farmers, rather than farm themselves.
FSA’s role is to serve as a safety net for farmers dealing with emergencies — fire and flood, for example, or the 2009 collapse of the milk price. The FSA also works with commercial lenders to assemble loan packages for all sizes of family farm operations. And, new this year, is an FSA microloan program that provides direct operating loans of up to $35,000 for people with limited resources and farm backgrounds who want to be in mostly small-scale production agriculture.
Delp stressed the point that FSA does not compete with commercial lenders. Instead, the agency supplements what they do. FSA can make direct operating and farm ownership loans to producers, but Delp said in those cases the agency considers it a success when the farmer-borrower is able to switch to a commercial lender. FSA works with commercial lenders on loan guarantees, where a lender is protected against a big loss should a farm enterprise fail.
Tiffany Lutz, farm loan manager for the FSA’s Lancaster office, explained the new microloan program to the group. Microloans are a modification of the FSA’s direct operating loan program, which has a $300,000 cap. Microloans are capped at $35,000, have a simplified application and have less rigorous credit checks.
The purpose is to help people with very little farm experience start small farm businesses. “Very little farm experience” does not equate to no farm experience, Lutz pointed out. FFA or 4-H membership can be claimed as farm experience, and if somebody from the city wants to get into production agriculture, an apprenticeship program is one one path to a microloan.
Lutz pointed out that streamlined operating loans are available to microborrowers in their second year of business, but the first year needs to demonstrate viability and sustainability, and the loan itself must have performed impeccably.
Lyle Hosler is vice president and director of finance for Lancaster’s Economic Development Company. He explained to the group that the EDCO is a non-profit enterprise with a 50-year history of financing mostly commercial, industrial and manufacturing enterprises in cooperation with federal and state programs and commercial lenders. Seven years ago, with the inception of Pennsylvania’s Next Generation Farmer Loan program, the EDC became more involved in helping to finance ag lending for younger farmers who typically don’t have the assets to finance farm operations.
EDC works to get those farmers on solid financial footing.
Randy Johnston, an EDC loan officer and former ag lender with a local bank, talked about the increasing complexities in the farm lending process. A loan application that may have covered a single sheet of paper in the past now requires a multiple-page document that can be an inch or more thick.
The people at the forum don’t apply for farm loans, but the farmers they deal with do, and Johnston told his listeners about some of the things those farmers need to do to get financing.
The first step, he said, is to write a one-page summary of the project. The summary should detail the relevant experience of the borrower and his-or-her partners. It should list the available cash and equity resources that will go into the project. Of special interest would be are any factors that would mitigate risk if the venture being financed doesn’t work out.
Lenders need appraisals before they’ll finance projects, and the good news there, said Johnston, is that appraisals have been getting better in recent years. Lancaster County is fortunate to have a number of knowledgeable appraisers, he said, as well as experienced ag lenders. Better appraisals means farm valuations closely reflect actual market values and also reflect recent appreciation in the value of farm assets, he said.
Johnston said a farmer applicant who pays for an appraisal should make it clear from the start that the farmer would like a copy of the appraisal, and that he should be able to share it with another lender if negotiations don’t work out with his first institution.