Lending Programs Key to Restoring Rural America | Commentary
In its most recent “Rural America at a Glance,” the Department of Agriculture found that, “while the U.S. economy is now in its sixth year of recovery from the Great Recession of 2007-’09, its performance remains weak in some respects, and this is especially true in rural areas.” The report goes on to say the unemployment rate has fallen in rural areas, but due only to a decline in the labor force participation. In other words, Americans living in small towns and rural environments have given up on finding work.
One way the federal government can address the problem of sluggish rural economies is through the USDA’s Rural Development Guaranteed Lending Programs, which help businesses and investors in rural America secure access to capital from their local financial institution in the form of USDA guaranteed loans.
The three primary USDA programs offering such vital guarantees are the Business & Industry, the Community Facilities and the Farm Service Agency guaranteed loan programs. While all three are managed by the Department of Agriculture, the Business & Industry and the Community Facilities guaranteed loans are mostly not agricultural in nature. Rather, they are for improvements in rural communities such as the construction of health care facilities, libraries, schools or even the expansion of local businesses.
Due to the importance of these programs, the National Rural Lenders Association was recently formed by number of banks and other institutions that have successfully utilized these guaranteed loan programs. The NRLA’s mission is to promote and advocate for these valuable guaranteed lending programs. It should be noted our members are not large banks or Wall Street investment firms, but rather, mostly community banks and small-town businesses. Less than a year old, the NRLA has already found strong supporters on Capitol Hill for USDA Guaranteed Lending Programs, including Reps. Robert B. Aderholt, R-Ala.; Andy Harris, R-Md.; Ted Yoho, R-Fla.; Jim Bridenstine, R-Okla.; Austin Scott, R-Ga.; and Sen. James M. Inhofe, R-Okla.
Perhaps the most important thing Congress can do to support the USDA’s Rural Development Programs would be to ensure the long-term viability of the guaranteed loan programs. These programs are public/private partnerships where the USDA guarantees loans for private banks and lenders up to a certain percentage of the loan. This ensures private lenders operating in rural areas are able to invest in their own communities.
This public/private partnership also protects taxpayers, by reducing their exposure to bad loans. Rural lenders best understand their local economy and often know the person or company to which they are making the loan. Even though the lenders have some of their risk offset by the government, they have little incentive to make a bad loan and absorb that loss. Most rural lenders do not have tens of millions of dollars stashed away (like the large institutional investors working on Wall Street) so a single bad investment could be significant.
Another way leaders on Capitol Hill could support these important programs would be to inform businesses and investors, in the communities they represent, about the existence of these programs. These USDA programs historically provide more than $3 billion annually for projects that would often not receive funding in the normal course of lending. Unfortunately, some of these available USDA programs go un-utilized each year by eligible participants because of the limited knowledge of these programs in rural communities.
Businesses, communities, not-for-profits and tribal entities in rural parts of the country may lack access to capital, but they aren’t looking for handouts. Rather, they just need a helping hand and the USDA’s Rural Development Guaranteed Lending Programs provide that. Therefore, it is essential that these programs are protected and improved upon. The National Rural Lenders Association looks forward to working with Congress and the Obama administration to help rural communities across the nation thrive.
Greg O’Donnell is the executive director of the National Rural Lenders Association and is a rural lending professional in Tulsa, Okla.