In just a few weeks, bankers may have to get creative to help farmers who once relied on government backing of their loans.

Unless Congress acts before Jan. 1, more than 4,200 farmers who have used Farm Service Agency loans for more than 15 years will be unable to get loans with federal guarantees. This is significant since farmers often take out operating loans each year to fund purchases of fertilizer and other supplies.

Farmers may hope that long-standing lender relationships will suffice, but with regulatory scrutiny increasing, ag banks might be left making some tough choices.

"This could really put us in a bind with these guys. We may or may not be able to help them," said Kreg Denton, a senior vice president of First Community Bank of Western Kentucky in Fancy Farm.

"We won't be able to make a new guaranteed loan — they might be out of business," Denton said. "We can consider a new line of credit without a guarantee, but with regulators, safety and soundness is paramount."

A 15-year limit on use of the guarantee program has been in effect since 1996 but was waived by Congress in 2002 and 2008.

In April, Sen. Herb Kohl, D-Wis., introduced a bill to extend the waiver through Dec. 31, 2012.

In an e-mail, Kohl's office said the bill is widely supported by farm organizations and agricultural lenders and he hopes the bill will pass by yearend.

Last month, Rep. Leonard Boswell, D-Iowa, introduced identical legislation, but issues like unemployment benefits and the Bush-era tax cuts are monopolizing lawmakers' attention, so farmers, bankers and observers are concerned that the extension could fall through the cracks.

"It is suffering from benign neglect," said John Blanchfield, the senior vice president of agricultural and rural banking at the American Bankers Association. "There are so many other weighty issues."

Though it is a relatively small piece of legislation, the effects could be significant since it would affect 7% of the 55,000 farmers who rely on guaranteed loans to fund their businesses. By 2012, that could swell to 7,500, or about 13%, according to banking groups and Boswell's office.

"This could be a mini farm-credit crisis," said Mark Scanlan, the vice president of agricultural and rural policy at the Independent Community Bankers of America. He said the ICBA plans to seek a long-term solution in 2012, when the 2008 farm bill expires and must be reauthorized. "There are just a lot of inconsistencies with the policy, and it needs to be dealt with in a broader scale," he said.

Ag banks said they had received lists of borrowers who would either hit or exceed the 15-year limit if the extension does not pass.

The Farm Service Agency declined to comment immediately, saying it was drafting a response describing how it is dealing with the impending term limit.

Ag bankers said they use Farm Service Agency guarantees as a last resort for borrowers who otherwise would not have access to credit. In a perfect world, they said, a farm should be strong enough after 15 years to borrow without government backing. However, this does not happen in practice.

"I understand why the term limit exists. After 15 years, you should have improved your financial position that you don't need a guarantee, or you should just quit," said Denton, the Kentucky banker. His $76 million-asset bank has 16 borrowers who would meet the 15-year limit on Jan. 1.

"The problem is that farming is cyclical," Denton added. "Last year was pretty good, but farms won't turn a profit this year because of the drought [in Kentucky]. Next year is not up to us; the good Lord has to give us rain and sunshine."

Still, the goal is to get those borrowers to move from guaranteed loans to traditional products, said Kim Greenland, a market president at Great Western Bank, the $8.3 billion-asset U.S. unit of National Australia Bank Ltd.

"Each year, we look to see if we can graduate them. That is always the goal," Greenland said. "But with all the volatility right now, the timing couldn't be worse. This would put us in a scramble."

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