Rural bankers are passing up free money from the government, and two government agencies want that to change.
The U.S. Department of Agriculture's Business and Industry Loan program provides guarantees of up to 80% on loans made by commercial lenders to a rural business. The program is intended to support rural banks but is having trouble finding takers for its guarantees.
On Sept. 30, the end of the government's 2003 fiscal year, the USDA counted almost $300 million of unused funds, according to John Rosso, the department's administrator for rural business services. It was not the first time the program had money left over.
"At the end of the last three years, we've had a surplus of several hundred million left on the table," Mr. Rosso said.
Government officials and bankers alike say that the Business and Industry program has been hamstrung by long waits - often in excess of two months - for guarantees to be approved, and by a heavy burden of paperwork.
William R. Buckles, the president and chief executive officer of Central National Bank of Alva, Okla., said the program helped the $178 million-asset Central National cut its losses when one of its borrowers, a livestock operation, went out of business. But collecting on the guarantee required an enormous amount of paperwork, and the experience left him reluctant to use the program again, he said.
That's too bad, because when it works the program can be a huge help to a community, bankers say - bankers including Mr. Buckles.
In 2001, Central National arranged for a local co-operative that makes frozen pizza dough and cinnamon rolls to borrow $7.5 million. It got a 70% guarantee on the loan from the USDA program, which was essential to making it, Mr. Buckles said.
Since the co-op opened, it has brought 100 jobs to town.
Mr. Rosso said a fully utilized Business and Industry Loan program could be an important source of credit for rural communities. It would increase their banks' ability to make loans, since the guaranteed portion of the loans does not count against an institution's legal lending limit.
To that end, the USDA is working to make the program easier to use, Mr. Rosso said. The approval process for large loans has been cut from two and a half months to two weeks, and he is trying to trim the eight-page application to two pages in the next three months.
At the same time, the Office of the Comptroller of the Currency has started promoting the program among the national banks it oversees.
Anna Alvarez Boyd, a deputy comptroller for community affairs at the OCC, said the regulator wants its banks to use the program because rural development is important for the safety and soundness of its banks.
"We like to see [rural banks] have robust community development programs, not just for the CRA boost, but also for the long-term profitability of" their communities, she said.
Ms. Boyd has talked up the program in presentations at conferences such as the Consumer Bankers of America's Small Business Lending Conference in October. That same month she moderated a teleconference to tell bankers about the program. She said nearly 400 bankers listened in.
Mark K. Scanlan, the director of agricultural finance at the Independent Community Bankers of America, said it will take more than publicity to get more rural banks to use the program. He said its application process has to be streamlined.
"You want to make sure a community bank doesn't need to have a dedicated person" for government guarantees, because rural banks often cannot spare the staff, he said.
For all its shortcomings, the program offers rural community banks a chance to finance deals that are too large or risky to pursue without a government guarantee, Mr. Buckles said.
"It's a means of obtaining financing for a project that couldn't get financing any other way," he said.
About 49 million people live in rural communities, but only about two million are farmers, according to the USDA Economic Research Service. That leaves 47 million "who need banking services and businesses and social amenities of life, like a bowling alley," Mr. Rosso said.
