Proposed Maine credit union to focus on farmers

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Farmers in Maine could soon have another option for financing — but it won't be a bank.

The state has a robust agricultural sector, with more than 8,000 farms that produce $3.8 billion in sales and create 24,000 jobs. Those farmers, especially smaller operations, will need roughly $186 million in coming years to finance farmland, and other institutions are unwilling to provide this credit, according to Maine Farmland Trust, a farming advocacy group.

A proposed credit union, which Maine Farmland Trust and others are organizing, hopes to fill that gap.

The Maine Harvest Credit Project would be the country’s first credit union to focus exclusively on loans and mortgages to local farmers and others in the food industry. So far, the group has raised $2.4 million from 23 donors, including the Maine Credit Union League, financial experts, local businessmen and farmers to help open the institution.

“During the past decade or so, we have witnessed a significant increase in small food companies and small farmers, and they will likely benefit from the type of funding services that this proposed credit union will seek to provide,” said Jim McConnon, a business and economics specialist and professor of economics at the University of Maine.

While bankers typically oppose credit union expansion, John Blanchfield, a longtime agricultural lending consultant and a principal at Agricultural Banking Advisory Service, agreed that there is a need for such an effort in Maine.

Agricultural lending in the state is dominated by farm credit lenders, and bankers tend to focus on existing customers, Blanchfield said. There has also been a surge in interest in “smaller, more country-oriented” farming in the state, especially among younger farmers looking to capitalize on the booming farm-to-table movement.

“I wonder why [bankers] didn’t come up with this idea,” Blanchfield said.

Maine has everything from dairy, potato and blueberry farming to fisheries and the lobster industry. Fruits, vegetables, hay and cattle feed are also major parts of the sector, McConnon said. Overall, the agricultural sector is “strong and diverse” with the number of food and beverage manufacturing companies growing at 3.5% annually for the last decade, he said.

There has also been an influx of younger people in Maine who want to work in the food, farm and agricultural sectors, McConnon said. The Maine Harvest Credit Project noted that 40% of the state’s farmers are 34 years old or younger. According to the Department of Agriculture, the average age of farmers and ranchers was 58 in 2012, the latest data available.

There is a growing demand from small-scale farmers, food processors and other agriculture-related businesses that need loans. That need inspired the organizers of the proposed credit union. The field of membership will include two statewide organizations, Maine Organic Farmers and Gardeners Association and Maine Farmland Trust.

The proposed credit union’s organizers have extensive Wall Street experience, as well as Maine backgrounds.

Co-founder Sam May grew up in Maine and worked on a dairy farm. He went on to work as a senior wireless technology analyst. Scott Budde, another co-founder, graduated from Bowdoin College in Brunswick, Maine, and worked in the investment management division of TIAA-CREF.

Budde said he and May first joined forces in 2013.

"Sam’s idea came out of his work with Slow Money Maine, a group focused on supporting local sustainable food systems, and a lifelong connection to Maine," Budde said. “Mine came out of social and community investing work at TIAA."

The credit union, which would be based in Unity, will offer agricultural loans and mortgages, including land-backed mortgages, which are essentially mortgages on a small farm. These loans can be more complex to underwrite and service and require significant assets and expertise.

But the spreads on member business loans, which are often higher than those for consumer lending, should help offset the risk, Budde said. There are fewer compliance concerns about member business lending than consumer, he added.

The Maine Harvest Organizer Group, an affiliate of the Maine Harvest Credit Project, is spearheading the charter process, which can be long and difficult. The National Credit Union Administration has chartered one new federal credit union so far this year — and four last year.

Todd Mason, president and CEO of the Maine Credit Union League, said his group has been involved with the project from the beginning, offering advice and guidance through the charter process. Mason said he is “optimistic” this one will get off the ground sometime next year.

“They are a very unique entity and there is great demand for their services in the state of Maine,” Mason added.

Budde indicated that there are factors that should facilitate the charter process for his effort. Its specialization, in terms of lending and deposit gathering, should help. It has also streamlined the products it will offer, forgoing certain services such as checking accounts and cash handling. Instead, it will gather deposits through savings accounts and CDs.

By focusing on member business loans, the credit union will be exempt from certain consumer lending rules. Credit unions that are created for the purpose of business lending and can prove that their members need it are exempt from caps on these loans, Budde said. It hopes to lend up to $250,000, and possibly more through loan participations and servicing agreements.

Most credit unions are subject to a legal cap that restricts the size of their member business loan portfolios to about 12.25% of total assets.

Finally, the organizers plan to make extensive use of networked services in Maine, such as co-op-shared branching and the surcharge-free SURF ATM network. Both are accessed through Synergent, an affiliate of the Maine Credit Union League.

“All this will help us keep costs low and management focused on the unique needs of our field of membership,” Budde said.

The organizers of the proposed credit union have already submitted an application for share and deposit insurance to the National Credit Union Administration. Budde said he is hopeful the institution will open next summer.

"They have already seen a draft and we have spoken with them several times over the last few years,” Budde said. “They have given us lots of feedback and asked lots of questions. Generally they have been supportive of the application and the comments have been helpful."

John Reosti contributed to this article.

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Community banking Credit unions Agriculture industry Commercial lending Maine