New regulations kicked in this week that will allow banks to obtain government guarantees on farm loans in 14 days or less. But officials of some smaller banks say the new Preferred Lender Program does not go far enough.

The program is administered by the Farm Service Agency, an arm of the Department of Agriculture. The agency guarantees up to 90% of a farm loan, but because of long waits for approval-often three or four months-few banks have participated on a regular basis.

"The turnaround time is just too long when a farmer is looking to plant his spring crops," said Mark Scanlan, director of agricultural affairs at the Independent Bankers Association of America.

Under the new policy, unveiled Feb. 8 by Vice President Gore, banks with a track record of lending to farmers may use their own lending criteria to determine if a farmer is eligible for a government-backed loan. If the Farm Service Agency does not respond to a preferred lender's application within two weeks, the loan is automatically guaranteed.

In announcing the program, Mr. Gore said, "This new policy will help expand the number of lenders participating in the loan program by making it easier to use."

Or will it?

During a House subcommittee hearing last week on agricultural credit issues, bankers and some members of Congress said the criteria for achieving preferred- lender status are too stringent-especially these days, when many farmers need credit most.

To be eligible, banks must make at least 30 agricultural loans in three years. That may seem like a modest target for larger banks, but it is not for some small rural banks.

Dale Leighty, president of $80 million asset First National Bank of Los Animas (Colo.), told the subcommittee that very few rural banks "would qualify based on the requirement of 30 loans." He urged the Agriculture Department to modify its new rules to include all ag banks with a history of successful lending to farmers.

Mr. Leighty said many banks have not used the Farm Service guarantees in the past "because of the paperwork, time delays, and lack of consistency in the program." He said the lack of access for smaller banks will "cause continued delays" and likely will "slow down the extension of credit at a time when farmers, including hog farmers, may need quick relief."

Rep. Saxby Chambliss, R-Ga., agreed. Banks, not government agencies, should be determining borrowers' creditworthiness, he said. "We ought to let the local folks at the local banks decide who's capable of paying back the loans," he said.

Agriculture department officials said during the hearing that the three- year, 30-loan rule is not etched in stone.

Carolyn B. Cooksie, deputy administrator at the Farm Service Agency, said its goal is to "bring as many preferred lenders into the program as we can," by targeting high-volume banks with strong track records.

Under the rules, only about 250 of the nation's more than 8,000 commercial banks would be eligible for preferred-lender status. But those lenders, according to Ms. Cooksie, hold about 46% of the banking industry's farm loans.

Still, she said, "If there's no appreciable change in loss rates, we can go in and change the volume."

How much money will be available for the preferred lender program this fiscal year, however, is unclear. With commodity prices at or near decade lows, many farmers are struggling with cash flow.

As a result, demand for Farm Service Agency guarantees has skyrocketed in recent months, leading to predictions that the $1.8 billion loan guarantee fund will be depleted by April-five months before the end of fiscal 1999.

The Department of Agriculture is expected to ask Congress to approve a special appropriation of up to $1 billion.

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