Wisconsin's agriculture lenders have a new option - a state government program guaranteeing a lower-than-usual loan percentage. If successful, it could spark similar endeavors in other states.

The program, in which the state would guarantee 25% of a loan's principal, would simply provide another financing option for farmers. Typically, farm loans backed by state or federal governments guarantee 90% of principal.

Like Wisconsin's dairy farmers, who face increasing competition from western states, many farmers need additional capital to remain competitive but don't need or qualify for loans with such high government guarantees.

"It's an entirely different approach," said David Grant, vice president of $99 million-asset Security National Bank, Durand. He said he expects to use the program to help his dairy farmer customers expand operations. "It's another tool in our tool box that we can pull out when we need it."

But there's a big draw for lenders like Mr. Grant: "It seemed like an easy program to use," he said."There isn't a lot of red tape."

Jim Langdon, chief communications officer of the Wisconsin Housing and Economic Development Authority, which runs the loan guarantee program, said it came about because existing loan guarantee programs did not always meet the needs of farmers wishing to upgrade or expand their operations.

If the program - dubbed the Farm Asset Reinvestment Management fund - catches on with Wisconsin lenders and farmers, it could inspire new lender- government farm loan partnerships in other midwestern states, he said.

"If it works the way we hope it will, I think other states will say, 'Hey, this is a good opportunity to make better use of our scarce resources,"' said Bruce Jones, a University of Wisconsin agricultural economics professor who helped develop the program.

Borrowers qualify for the new loan program if they are expanding an existing farm operation and - after using the loan to acquire new assets - would have a debt-to-asset ratio of 85% or less. Lenders also must assess potential applicants' assets, cash flow, and management ability.

Mr. Jones said the lower guarantee shouldn't be too risky if bank lenders do their jobs right.

"Their business is assessing and managing risk," he said. "I have a lot of confidence that the lending community will be able to handle this. They don't need a 90% guarantee in many cases."

The 90% guaranteed loan applicants "probably have more than one or two weaknesses," said Security National's Mr. Grant. "The 25% ones, they're going to be stronger loans and maybe just have that one little weakness of collateral."

The housing and economic development authority said the new program, which the Wisconsin legislature authorized earlier this year, would guarantee up to 25% of a maximum $400,000 loan or 25% of total net worth, whichever is less.

The total amount of the loan pool is undetermined, Mr. Jones said, because it will come from funding for the authority's other programs. At least $5 million should be available immediately, he said.

The guarantees can be applied to loans for purchasing land, equipment, facilities, or for improving facilities and land. But they can't be used for refinancing purposes.

Terms on the loans can be up to 10 years for land or facilities loans and up to five years for other farm loans.

Farmers can use the guarantees in conjunction with other state and federal programs, but that reduces the maximum guarantee under the new program to $50,000.

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