The need for farmers to bolster their income with nonfarm earnings is becoming increasingly clear to them - and to their worried lenders.

"At more of our smaller operations, the farmers ... have to find off- farm jobs to supplement their income," said Ron Greeson, executive vice president of $37 million-asset Paris National Bank in Paris, Mo.

Increasingly, farmers have found that the rising costs of working the land have outpaced their income, particularly for the smaller family farmers that many community banks finance. In response, one or both spouses of many farm families have sought other jobs.

That's a relief for the bankers, who are concerned that farmers might not be able to pay off their loans.

"It's getting very tough for the farmer," said Dave Krittenbrink, vice president of $35 million-asset First Bank of Okarche, Okla. The cost of "machinery and equipment keeps going up, fertilizer keeps going up, fuel keeps going up."

Add to that the increased cost of living, said Dallas Kime, a senior loan officer at $118 million-asset First National Bank in Ogallala, Neb., and it's not surprising that many banks' farm customers have been forced to seek alternative income sources.

James Ryan, an economist at the Agriculture Department's Economic Research Service, is studying how farmers' ability to service debt is affected by their use of off-farm income.

"Smaller operations tend to be much more reliant on nonfarm income," he said. "Basically, if everybody lost their off-farm job, they could be in very serious trouble very shortly."

That means farm banks have had to pay closer attention to producers' cash flow.

"Back in the '70s we were just getting started with cash flows," Mr. Greeson said. "A lot of times, we didn't do them on the small operations. We were more concerned with collateral than repayment abilities. The deflation of the '80s has changed the way we do business."

Now, he said, bankers look to see if farm customers' income will actually cover their debts.

Farm banks also need to examine and consider customers' living expenses as thoroughly as their farm costs, Mr. Kime said.

"We've probably been at fault in not making them document family living expenses," he said. "I think we will definitely do a better job of that in the future."

And if the income isn't adequate, often the banker either can't make a loan or has to restructure an existing one. In fact, Mr. Krittenbrink estimated that he couldn't have booked about a quarter of his farm loans if the borrowers didn't have off-farm income.

As a result, rather than give up a loan, bankers might have to recommend that a customer explore other income sources, although that is not always easy, said James T. Chambers, president of $51 million-asset Town and County Bank in Stephenville, Tex.

"I have found myself having to say, 'You're going to have to look at other sources of income,'" the president and chief executive said. "It's really hard to tell someone, 'You have to go get a job.' It's really presumptuous on the bankers' part to say that."

Off-farm income also can be more predictable, letting lenders structure more frequent loan payments, the USDA's Mr. Ryan said. And lenders noted that nonfarm jobs bring farmers lower-cost benefits such as health care coverage that they might not otherwise obtain.

Instead of getting a full-time, nonfarm job, farmers can earn extra income from other agriculture-related jobs, such as selling hay or doing independent contracting. They can also sell off some of their assets or operations, although that would actually reduce their farm income, lenders said.

And Mr. Chambers said that while he believes many of his dairy farmers who have secured full-time off-farm jobs might initially have intended only to supplement income, they now see it as a way to get a foot in the door somewhere else and leave farming altogether.

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