Farm Aid for Agricultural Lenders

Farmers and their bankers will have a better understanding of the financial health of their agricultural operations as a result of a new online initiative from the Farm Service Agency (FSA), a division of the U.S. Department of Agriculture.

The FSA guarantees qualifying loans made by agricultural lenders, which then often sell the guaranteed portion of the loan in the secondary market through the Federal Agricultural Mortgage Corp.'s "Farmer Mac II" program. The FSA also lends directly to qualifying farmers who are getting started in the business.

But taking advantage of the government's largesse previously had required a trip to the nearest FSA service center, where an agent would manually enter farmers' financial data into a PC program. From there, loan applications would be analyzed at the local level and then sent to the state office for review. Then, applications would escalate to the federal level. By the time the approvals cascaded down the ladder, the whole process would take at least four to five weeks - and that's if everything went smoothly.

"It typically would take us 30 to 60 days to get an FSA approval - and as much as six months," says John Roers, senior vice president, agricultural lending, Home Federal Bank, a subsidiary of HF Financial Corp. (Sioux Falls, S.D.; $800 million in assets).

Now, using software from ECI (Glenwood, Iowa) to power its new Farm Business Plan program, the FSA expects that the round-trip approval shouldn't take more than a couple of weeks. For starters, that translates into better risk management and happier customers. "If we give the customer an indication that we think we can get a 7 percent rate today, and it takes two months to close and the rates move up another 100 basis points, they're either unhappy or we didn't get the spread we wanted [on servicing revenue]."

But it's not just about faster applications. The agricultural lenders will also benefit by sharing a common valuation method and file format with the FSA. "This will put us all on the same software, with similar analysis," says Roers. "This should make it easier for both of us to make credit decisions."

ECI's software will tie together the FSA, the farmers, the accountants and the agricultural lenders, according to Gary Kruse, CEO of ECI. "It standardizes the industry and allows them to exchange data seamlessly between these organizations and the individual farmers," he says.

The FSA has $18 billion in outstanding loans, both direct and guaranteed, to approximately 100,000 farmers. Now, the FSA will have access to unprecedented detail about all of its exposures, which should pay off the next time there's a regional emergency, such as a report of Mad Cow Disease. "We can quickly go in and say, 'If cattle prices drop 10 percent, how many farmers do we have now that are in financial trouble?'" relates Mike Hinton, branch chief of the direct loans program for the FSA. "It will enable us to be a lot more proactive with our borrowers."

By the end of September 2004, the FSA will have trained approximately 2,100 loan officers in the use of ECI's Web Equity Manager software, and by mid-2005, it intends to make the software available on the Web for farmers to access directly.