Flexibility needed to secure viability at rural banks

Ed Elfmann

Editor’s Note: Ed Elfmann is the senior vice president of agricultural and rural banking policy at the American Bankers Association. Prior to joining ABA in 2012, Elfmann, a Minnesota native, was a legislative assistant for Rep. Steve King (R-Iowa); prior to that, he managed legislative and political affairs for the National Corn Growers Association. Elfmann shares his thoughts on the state of rural finance and national farm policy with editor Jacqueline Nasseff Hilgert.


Q: In the boom years, farmers had a lot of cash and didn’t need as many loans. Now lending is up in rural areas, but funding is becoming a problem. What alternative funding sources are you seeing rural banks using to keep lending?

Ed Elfmann: We are seeing an increase in the use of USDA Farm Service Agency guaranteed loans across the country. Additionally we are seeing an uptick in the use of secondary markets. Both methods allow smaller banks to do more lending and they are great tools for our bankers.  There is a trend with our successful banks and that is communication. By having great lines of communication between the bank and the farmer, we’ve seen that banks can be much more helpful in finding multiple financing options and providing more for the farmer.

Q: We’ve heard that equipment manufacturers are playing an increasing role in financing purchases, potentially keeping weak farmers in the game. What can bankers do to help their farm customers stay healthy?

E.E.: Communicate, communicate, communicate!  Bankers should constantly be in conversation with their farmers to make sure their financing requirements are being met. When I’ve heard of farmers getting into trouble with repayments, it almost always stems from the farmer not communicating with the banker about additional loans that they may have taken from non-bank sources. By communicating early and often, bankers can help mitigate potential issues with their farmers.  

Q: Like in banking, agriculture has undergone a great deal of consolidation in recent years. There are fewer farms, but they are bigger. What does this consolidation mean over the long-term for farm finance? What needs to happen to ensure the viability of the small, rural bank?

E.E.: With large farms becoming the norm, financing these operations has grown in size and scope. We are seeing loans become larger and larger, which is expected with larger farms. An interesting change in agricultural finance that I’m seeing, is the structure of loans.  Farming operations are rarely just farms. Often these operations include multiple lines of business; some are farm related, and some aren’t. As farmers look to diversify, I believe loans will have to follow that trend.

To ensure the long term viability of small, rural banks, they need to be flexible in how they put together their loans to reflect the changing trends in agriculture. Additionally, they need to have tools available to them, whether it is USDA guaranteed loan programs or the flexibility from their regulators to make “unconventional” loans. In many ways, we will need to view lending by these banks differently to allow for their long term viability.

Q: The 2019 budget put forth by the administration calls for elimination of rural business and cooperative management programs. I know business and industry loan guarantees are very popular with bankers. Can you talk about the potential impacts to rural lending if this change comes to pass? Should bankers be worried?

E.E.: Removing B&I loans would have a big impact on rural business lending for banks.  Essentially, this would take away an important tool in a banker’s toolbox. As of now, I don’t believe that bankers should be worried, as there are a lot of rumors about what may happen to different programs. I have worked in D.C. for 10 years now, so I’ve become accustomed to hearing many rumors, but often that’s all it is – a rumor. Until actual changes are proposed by a federal rule or legislation, we will have to accept a rumor at face value. I will say this, however: ABA is always listening for potential changes and weighing in with the proper individuals within the government. Our No. 1 goal is to protect bankers and their businesses and we will continue to do so.

Q: There’s talk about changing the crop insurance program in the farm bill. I imagine bankers don’t want these changes. What do bankers want from a new farm bill? And what are the chances, with this administration, that the changes they want will come to light?

E.E.: Bankers are very supportive of protecting crop insurance. Crop insurance provides risk management for our farmers and helps them navigate through weather events on their farms. These programs have been working, so why would we change a good thing?

Bankers are looking to increase the loan limits on USDA Farm Service Agency guaranteed loans. Currently, the loans are capped at $1.399 million. Thankfully, both the House and Senate versions of the farm bill increase these loan programs to $1.75 million. This is a huge win for bankers because it gives us the flexibility to help even more of our customers. ABA has been working on this issue for almost 20 years, and with passage of a farm bill, we will finally achieve a long-time goal.

Q: There are rumors that SNAP will be moved from USDA to HHS. Without SNAP as part of the farm bill, what’s to keep members of Congress from non-rural areas interested in a farm bill?

E.E.: The talk to remove SNAP from USDA is not a new idea. It will be interesting to see if this change actually occurs in the future or not. I would say non-rural areas need to be concerned with a farm bill because it helps to provide food security for our country. The farm bill helps our farmers stay in business through good times and bad, so it really does affect everyone.

Q: You are originally from rural Minnesota. How does your upbringing inform your work?

E.E.: Growing up in Maple Lake, Minn., I learned the value of hard work and working with others to achieve a goal. I am a firm believer that you may disagree with someone on all but one issue, so why not work on that one issue together?  I guess it’s the mentality of small town America. You have to get things done at the end of the day. Additionally, growing up on a dairy farm gave me a real-world view of how agriculture really works and what it takes to keep an operation going. I honestly believe that I wouldn’t be where I am without my upbringing on a farm in a small community.