Low-interest drought loans come with strings attached

On the Farm

August 05, 2007|By Ted Shelsby

Uncle Sam is prepared to help drought-plagued farmers with low-interest loans to pay their bills.

This would be the primary benefit to growers in any region of the state declared an emergency disaster by the U.S. secretary of agriculture.

The loans, however, would come with strings attached, and not many are approved.

Low-interest means 3.75 percent, said Stevin M. Westcott, a spokesman for the U.S. Department of Agriculture's Farm Service Agency, which administers federal policy.

"That's a very attractive rate," said Kenneth Bounds, vice president of MidAtlantic Farm Credit, the Westminster-based banking cooperative and the state's largest agriculture lender.

He compared it with the 8.25 percent prime rate, which banks charge their best customers.

"That's a saving of 4.5 percent," said Bounds, who calculated that it could save a farmer several thousand dollars a year.

He said a seven-year, $100,000 loan at 3.75 percent would result in payments totaling $16,507 a year. This compares with annual payments of $19,372 on a 8.25 percent loan for the same amount.

Under the federal plan, farmers could borrow up to 100 percent of their losses, to a maximum of $500,000.

Loans for crop, livestock and non-real estate losses are normally repaid in one to seven years. In certain circumstances, terms of up to 20 years may be authorized.

To be eligible for government assistance, farmers would need to show that they were unable to receive credit from commercial sources.

That is not always easy.

"While the low interest rate is appealing," Bounds said, "regular lenders usually find ways to help a great majority of the people with their problems. Lenders will work with borrowers during times of stress to help farmers get back on a stable financial footing."

Bounds said the federal loan program can sometimes put conventional lenders in awkward situations. He said some farmers want to be rejected for commercial loans to take advantage of the government program.

Following the drought of 2002 - considered one of the worst in more than a century - the Farm Service Agency approved only five loans, totaling $199,000, said Dann Stuart, a spokesman for the federal agency. That year, 21 of the state's 23 counties were declared disaster areas.

Other conditions of eligibility listed on the Farm Service Agency's fact sheet include:

Farms need to be operated by farmers with sufficient farming experience.

Farmers must be citizens or permanent residents of the United States.

They need to show at least 30 percent loss in crop production.

They must have an acceptable credit history.

They must provide collateral to secure the loan.

They must be able to repay the loan.

All emergency loans must be fully collateralized. The specific type of collateral may vary depending on the loan purpose, repayment ability and the applicant's circumstances.

If applicants cannot provide adequate collateral, their repayment ability may be considered as collateral to secure the loan. A first lien is required on property or products acquired, produced, or refinanced with loan funds.

The Farm Service Agency must receive all applications for emergency loans within eight months of the county's disaster designation date.

The Maryland Department of Agriculture estimates that farmers have lost between 30 percent and 60 percent of their crops this year because of the shortage of rain.

"Maryland farmers are having trouble paying their bills because of the drought that has covered the state over the past two months," said state Agriculture Secretary Roger L. Richardson.

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