To encourage more banks to make farm loans, the Farm Service Agency is making it easier to become a "preferred lender."

The agency, an arm of the U.S. Department of Agriculture, began the preferred lender program in February to speed up the guaranteeing of government loans.

But only 13 of the 250 eligible commercial and Farm Credit System banks have applied for preferred lender status, so the agency decided this month to open the program to 500 more banks.

Banks that have made 20 farm loans in the last five years are now eligible. Previously, banks had to have made 30 farm loans within three years to qualify.

"We want to encourage more lenders to participate so that we can make more credit available to farmers in these difficult times," said Keith Kelly, administrator of the Farm Service Agency.

The banking industry is applauding the change. Since the day the program was unveiled, bank trade groups, with help from some members of Congress, have argued that the 30-loan, three-year threshold shut out too many lenders.

"This is a positive step, and we're glad to see the agency acted quickly and didn't drag this out," said Mark Scanlan, director of agricultural affairs at the Independent Community Bankers of America.

Thousands of banks tap the Farm Service Agency's $1.8 billion guarantee fund each year, but few do so on a regular basis because approvals typically take three to four months.

The preferred program was established to improve the turnaround time for select lenders. These banks can get approvals in as little as two weeks.

The Farm Service Agency processes about 65,000 loan guarantees a year, backing as much as 90% of each loan.

This year demand for government guarantees is at an all-time high. With farm income expected to fall 7% this year because of continued low commodity prices, more banks than ever are seeking Farm Service Agency guarantees to ensure repayment.

To meet demand, Congress last week approved a special $110 million appropriation to prevent the agency's loan programs from running out of money before the end of the fiscal year.

Still, some banking industry officials question whether the agency can handle more loan guarantee requests.

John Blanchfield, manager of farm programs at the American Bankers Association, said demand will not subside until crop prices recover. That could take two years, according to Agriculture Department projections. Meanwhile, the Clinton administration is seeking to reduce the Farm Service Agency's budget and cut its staff in fiscal year 2000.

"We could be looking at a series of years where we're always engaged in trying to get additional funding," Mr. Blanchfield said.

The program ran out of money late in the third quarter of the last fiscal year.

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