Popular federal programs that guarantee farm loans are already running out of money, forcing banks to assume more risk or abandon borrowers.

There is funding to guarantee $2.8 billion of loans this year as in the past two. But demand has spiked, because farmers are suffering from low commodity and livestock prices.

About 15 states have already used up their allotments.

"Typically we run out between May and August, but we are going through our funds more quickly this year," said Steven Ford, a spokesman for the Farm Service Agency, part of the Department of Agriculture.

Each year more than 5,000 banks use the funds to guarantee up to 90% of real estate and operating loans or to discount loan interest rates.

Many banks want to use the guarantees this year to reissue debt that farmers cannot pay off with proceeds from their 1998 crops.

Harley D. Bergmeyer, chairman and chief executive officer of Saline State Bank, Wilber, Neb., said many local farmers will have a hard time getting credit without the guarantees. "This program is a last-resort type of thing," he said. "This is the most important tool we have to help these people."

Mr. Bergmeyer said his $52 million-asset bank was notified in late January that money for one of Nebraska's programs is already gone. "It's so frustrating," he said. "These farmers we're working with need help, and they need it now."

The American Bankers Association, the Independent Bankers Association of America, the Farm Credit Council, and a dozen farm trade groups are lobbying Congress and the Clinton administration to increase funding for the guarantee programs.

"We want to make sure that every farmer and rancher that is having financial difficulties has access to the options that the guaranteed loan programs offer," the groups said in letters to lawmakers and USDA Secretary Dan Glickman last week.

John Blanchfield, manager of the ABA's agricultural bankers division, said he is optimistic that Congress will include more funding for the guarantees when it agrees on supplemental appropriations this spring. "Clearly this is what everyone wants," he said. "These funding programs are running out of money, and we can't let that happen."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.