Community bankers are rallying around a proposal that would provide banks with tax exemptions on interest earned from agricultural real estate or home loans in communities whose populations are below 2,500.
Gus Barker, the president of First Community Bank in Oelwein, Iowa, told members of the Senate Agriculture Committee on Thursday that the Access to Credit for our Rural Economy (ACRE) Act would allow community banks to cut interest rates for farmers and rural residents by between 1.5% and 2.5%.
The bill is not currently listed on Congress.gov, though a representative of another banking group, the American Bankers Association, said at a hearing in February that Sen. Jerry Moran, R-Kan., would be introducing it “in the near future.”
Barker, testifying on behalf of the Independent Community Bankers of America (ICBA), said the bill would help lower banks’ costs and provide them with the resources to keep farmers’ interest rates low.
“Any cost savings that we could provide those beginning farmers is essential,” Barker said. “We can’t control the input costs or anything else. The only thing we could control is the interest and that is one way we could do that, by having that interest tax free to the bank on the ag side of things.”
Barker also proposed a program that he said would allow the Agriculture Department to speed up its loan approval times and allow farmers to access credit more quickly. The “USDA Express” program would be based on a similar one operated by the Small Business Administration, which provides a 50% guarantee for a $500,000 loan.
The SBA Express program "features an accelerated turnaround time for SBA review," the agency's web site says. "The SBA will respond to your application within 36 hours."
Barker told the committee that a USDA version of the program could provide a 50% to 75% guarantee instead of the 90% guarantee the agency normally uses. The agency could then approve loans within 36 hours with a $1 million cap, he suggested.
Sen. Joni Ernst, R-Iowa, asked Barker how long it currently takes for new, young and beginning farmers to secure USDA loans. He said many often have to wait six months or longer.
“Some of the opportunities my young farmers have had come up are under a deadline because there are multiple people willing to pay the price," Ernst said. "And for a young farmer who applies for a USDA loan, they don’t come through very fast. If that’s delayed, that seller is going to go somewhere else where he knows he can get the money fast."
Barker also told John Hoeven, R-N.D., that USDA direct and guaranteed loan limits should be raised in the farm bill to keep up with higher land and input prices. He said ICBA is proposing a $3.5 million limit for ownership and $3 million for operating loans, though he also suggested they be indexed to keep up with inflation in the future.
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Two representatives of the Farm Credit Council also called on Congress to expand the authority of Farm Credit institutions to allow them to invest in rural community facilities projects, as well as enter into partnerships on these projects with community banks. Phillip Morgan with Southern AgCredit in Ridgeland, Mississippi, and Jase Wagner with Compeer Financial in Sun Prairie, Wisconsin, said doing so could help contribute to the “vitality” of rural communities.
“There is no question facilities in rural communities are in dire need of updates and upgrades, including structural improvements and technology,” Wagner said. “We believe the capital need is so great that community banks will not be able to fill the gap by themselves and, with over $300 billion in capital and complex lending expertise, Farm Credit lending institutions are well positioned to partner with them to tackle the issue.”
Barker, however, pushed back, urging lawmakers not to allow Farm Credit System members to expand into non-farm lending activities. He said allowing them to invest in structures such as fire stations, schools, healthcare facilities or housing complexes would take business away from local banks.
“Such broad authorities could push community banks off Main Street,” Barker said.
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