Wis. Banker Uses Guarantees To Keep Up with New Demands

To handle larger loan requests from expanding farmers, Wisconsin banker Doug Hein has relied not on other banks, but on guaranteed loans.

"It's necessary to use the programs available," said Doug Hein, loan officer at $36 million-asset State Bank of Newburg, Wis. "If we do not do that, we will have to send the business elsewhere."

Although his bank sits on the edge of the Milwaukee metropolitan area - whose growth has resulted in some decline in agriculture - farm loans, mainly dairy, still make up about a quarter of the loan portfolio.

And the expansion and modernization of dairy operations has prompted Mr. Hein to turn to guaranteed loans from the former Farmers Home Administration, now the Rural Housing and Community Development Service.

"I'm applying for a guarantee to reduce risk," Mr. Hein said. "I can sell off the guaranteed portion. It improves our liquidity. I can also provide the farmer with a fixed rate."

In what Mr. Hein calls a typical case in which he used a loan guarantee, a dairy farmer needed about $220,000 in initial borrowings to double his herd to 250 and add a new barn and manure handling system.

State Bank has not yet done any farm loan participations with other banks, he said.

But if an agricultural customer had expansion plans beyond what the bank was capable of doing through guaranteed lending, Mr. Hein said he would consider loan participations with other commercial banks "if it would be necessary to handle an existing customer."

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