Credit crunch could affect future farm loans

Farm loans could get squeezed.
Farm loans could get squeezed.
Rural community banks that service loans for farmers and ranchers have expanded lending since the recession began, even as consumers have struggled to get loans for mortgages. But capital constraints could reverse that trend, according to the American Bankers Association (ABA).

Testifying on behalf of ABA before the Senate banking committee last week, ABA chairman-elect Arthur C. Johnson said that community banks that focus on farmers and ranchers increased lending by 9 percent since the start of the recession.

But although community banks entered the recession with strong levels of capital, raising new capital in the current financial climate is very difficult, he said. Without access to capital, it will be tough to keep credit flowing in rural communities.

The government can take action to help rural community banks, Johnson said, noting that a comparatively little amount of capital would go a long way - about $3 billion, a drop in the bucket compared to the $182 billion given to AIG.

Last month, Congress increased the available funds for loans to farmers and ranchers through the Farm Service Agency to $800 billion in an emergency appropriation. FSA loans can be used to purchase land, livestock, farm equipment, feed, seed and supplies.