Management Services:

Farm Lenders Offer Management Assistance

Farm management assistance and related credit counseling are frequently available through farm lenders and their agricultural loan officers. Three types of institutions commercial banks, the Farm Credit System's borrower-owned banks and associations, and USDA's Farmers Home Administration (FmHA) are the main lenders for farmers all across the country. These lenders provide capital and other resources to help America's farmers acquire land, facilities, machinery, and supplies.

Farm lenders have a keen interest in the management of farm businesses, since they must rely on income generated by those farms to repay their loans. To assure high quality loans, lenders must have reliable information about their farmer clients, and they must be able to evaluate the strengths and weaknesses of farm businesses. Farm business management is closely related to the credit decisions that lenders must make on a daily basis.

Farm lenders generally have loan officers who are trained and experienced in farm financial management, and many are experts in the field. Farm loan officers often assist farmer clients in analyzing farm records, developing and interpreting financial statements, and evaluating the impact of proposed changes in the operation.

Varying amounts and kinds of management assistance are available through each lender. Farm families must analyze their particular needs and situations and select the lender that will best meet those needs.

The following describes services offered by the three main institutional groups of farm lenders. Contact the appropriate lender to determine services and assistance that will best suit your needs.

Commercial Banks

There are approximately 14,000 commercial banks located throughout the United States that provide a wide variety of loans and other financial services to farmers, ranchers, agribusiness suppliers, rural businesses and residents, and their nonrural counterparts.

Credit Services. These banks play a significant role in farm production and farm real estate lending, and can supply other credit services such as FmHA guaranteed loans, consumer and business loans, auto and truck loans, home and home-equity loans, student loans, and credit card services. In addition, in late 1989, they will be a significant source for long-term, fixed interest rate loans through the Secondary Market for Farm Real Estate Loans, more commonly known as Farmer Mac.

The majority of this commercial bank agricultural credit is supplied by the Nation's farm banks. Farm banks are defined by the Federal Reserve Board as banks whose agricultural loans, as a percentage of total loans, exceed the unweighted average of the ratio of farm loans to total loans at all banks. This ratio currently stands at 15.99 percent, and there are 4,441 farm banks.

Commercial banks continue to be the largest suppliers of farm production (nonreal estate) loans. By the end of 1987, banks held approximately 44 percent of this market, up from 38 percent in 1980. These production loans are tailored to meet the exact credit needs of individual farmer,. They may charge fixed or variable interest rates and may vary in term from 1 day to 10 years. These loans may be set up as a single advance loan, where all the funds are borrowed at one time at the beginning of the loan, or they may be structured to provide funds in multiple advances.

Commercial banks can also supply farmers with fixed or variable rate real estate loans for the purchase or refinancing of farm real estate.

Lease Services. Because it is not always prudent for a farmer to purchase all needed assets, some banks are now servicing these customers through leasing programs. These leasing programs allow the borrower to control the use of the asset, without heavily affecting the farm's balance sheet. These leasing programs can provide some tax benefits that may not be available to farmers who purchase the assets for use.

Farm Management Services. Commercial banks offer agency and trust farm management services for their farmer customers. Often, the agency services are carried out for farm owners who cannot actively manage their farms, or for farmers who need extra expertise in managing their farms. The trust farm management services are often supplied to farmers who wish to set up a trust to manage a farm that will be passed on to heirs who cannot actively manage a farm.

Other Bank Services. Commercial bankers can attend training offered by the American Bankers Association to help them provide improved farm financial analysis to their farm customers. Some banks provide this analysis to their farm borrowers at no charge, and others charge borrowers to cover the cost of providing the analysis.

Commercial banks also provide customers with farm recordkeeping services, usually for a fee. Another service some banks provide for a fee is commodity marketing services. With the farmer authorization, the bank can transfer funds through the Federal Reserve System to cover margin calls.

Commercial banks also have the ability to provide farmers with a wide variety of deposit services, including checking and savings accounts, as well as cash management accounts such as money market accounts, NOW accounts, certificates of deposit, wire transfers of funds, and certified checks. All deposits of less than $100,000 are Federally insured by the Federal Deposit Insurance Corporation.

Bank policies and products vary from bank to bank. To find out what services are available in your local bank, speak with the bank's customer services representative.

Farm Credit System

The Farm Credit System is a nationwide network of borrower-owned banks and associations that provide credit and financial services to farmers, ranchers, and their cooperatives. Others eligible to borrow from Farm Credit include rural home buyers, commercial fishermen, aquatic producers, timber operators, rural utility systems, and other businesses related to agriculture. The Farm Credit System is the largest single provider of credit to U.S. agriculture, with offices in every State and Puerto Rico.

Credit for Agricultural Producers, Rural Home Buyers, and Farm-Related Businesses. Production Credit Associations (PCA's) make short- and intermediate-term loans with maturities of up to 10 years fora variety of purposes, including operating expenses, equipment purchases, and capital improvements. Federal Land Bank Associations (FLBA's) make long-term loans, typically with maturities greater than 10 years, for farm real estate and rural home mortgages. FLBA's make loans as agents for the district Farm Credit Banks. Agricultural Credit Associations (ACA's) make loans of all types. An ACA is the result of a PCA and an FLEA merging into a single association.

In many parts of the country, PCA's and FLBA's operate under joint management and, therefore, are able to offer borrowers short-, intermediate-, and long-term loans. System associations are sometimes known by their trade name--Farm Credit Services or Farm Credit.

Farm Credit offers borrowers a variety of loan products, including the standard variable rate loan and a number of fixed and adjustable rate loans. Special loan programs for small loans are also available in most areas; these minimize paperwork and speed up processing of loans typically under $50,000.

Products vary from one district to another to reflect regional differences in the marketplace. Each loan is tailored to meet the specific needs of the individual borrower. Every Farm Credit office sets its loan rates on the basis of three primary factors: (1) the local competition, (2) the costs associated with obtaining loan funds and servicing the loan, and (3) the risks associated with the loan. Regardless of the type of financing, interest is paid only on the amount used and only for the time it is used.