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Friday 19 January 2024

States expand low-interest loan programs for farms, businesses

and new housing

Continued from Front ings for the state. Many states Doug Fish said.
have built large surpluses from Among those left disap-
The programs have taken off pandemic-era revenues, pointed was Jason Bernard,
after a series of key interest meaning they have more a farmer near Bethany who
rate hikes by the Federal Re- money available to deposit had hoped for a low-interest
serve made virtually all loans in banks. loan to help purchase this
more expensive, whether for Though most states don’t cur- year’s supply of seed, fertilizer
farmers purchasing seed or rently offer such programs, and chemical spray.
businesses wanting to expand. some that shelved them when With higher interest rates, “it’s
To combat inflation in con- interest rates were low are a lot harder to make it, just
sumer prices, the Fed raised now considering whether to because your payments,”
its benchmark interest rate revive them to aid financial- Bernard said.
11 times from March 2022 to ly-strapped businesses and The Missouri treasurer’s office
last July, setting it at a two- residents. is backing legislation to raise
decade high. “I can say in talks with other the program’s cap from $800
Under so-called linked-deposit state treasurers that there is million to $1.2 billion, which
programs, states deposit mon- a definite increased interest would mark a 50% increase
ey in banks at below-market in treasury money, whether Missouri Treasurer Vivek Malek stands near a poster promoting in capacity.
interest rates. Banks then lev- that is through a linked-de- drought conditions and state aid programs on Jan. 4, 2024, at The expansion could cost the
erage those funds to provide posit program or a different his Capitol office in Jefferson City, Mo. state $12 million of potential
short-term, low-interest loans vehicle,” said Illinois Treasurer Associated Press earnings, though that could
to particular borrowers, of- Michael Frerichs, who is presi- lion of low-rate deposits for applications linked to more be partly offset by the eco-
ten in agriculture or small dent of the National Associa- agricultural loans. than $220 million of loans, said nomic activity generated
business. The programs can tion of State Treasurers. With rising demand, Frerichs Rafael Salaberrios, a senior from those loans, according
save thousands of dollars for Illinois has nearly $950 million of recently raised the program’s vice president who manages to a legislative fiscal analysis.
borrowers by reducing their deposits linked to low-interest overall cap from $1 billion to capital access programs at In Montana, lawmakers last
interest rates by an average loans for farmers, businesses $1.5 billion. Empire State Development, year authorized a new pro-
2-3 percentage points. and individuals. That’s up sub- Though smaller in scope, New New York’s economic devel- gram to address a shortage
States typically cap the stantially from past years. In York’s program also has seen opment agency. of affordable housing.
amount of money available 2015, Frerichs said, the state’s an explosion of applicants. “As the banks see the benefit, The Montana Board of Invest-
for such discounted rates at agricultural investment pro- In 2022, New York had 42 ap- they are inundating us with ments launched a linked-
either a flat dollar amount or gram had just two low-interest plications for state deposits in applications — and that’s a deposit loan initiative in
a percentage of their total loans. By 2022, that had grown financial institutions linked to good thing,” Salaberrios said. October that received $77
fund balances, because the to $51 million of loans. Last $20 million in low-interest loans. He added: “The linked deposit million of applications within
programs result in less earn- year, Illinois made $667 mil- Last year, that rose to 317 has allowed for the growth of two months, reaching a self-
small businesses to continue imposed cap and forcing it
even during these high (in- to close applications sooner
terest) rate environments.” than expected.
Because of rising demand, Republican state Rep. Mike
Missouri’s linked-deposit loan Hopkins, who sponsored the
program neared its statutory housing incentive legislation,
cap of $800 million last May. was thrilled with the response.
After some existing loans ex- “We’re in a bit of a jam in
pired, the treasurer’s office the state of Montana” for
was able to reopen appli- affordable housing, Hopkins
cations at 10 a.m. on Jan. said, and “we were able to
2. By 4 p.m. that day, it had get money out the door as
approached the cap again quickly as possible.”
— receiving 142 applications Officials in Iowa, Kansas and
totaling over $119 million — Ohio also told the AP they
and closed the application had increased demand for
window. programs that deposit state
About half the applications money in banks to provide
came on behalf of customers low-interest loans.
of just two financial institutions The number of such loan
— OakStar Bank and FCS Fi- recipients in Kansas tripled
nancial, a leading agricultural from 2022 to 2023. In Ohio,
lender. FCS Financial had over the amount of money pro-
100 additional applications in vided for those loans rose by
line to submit when applica- two-thirds during that time,
tions were cut off, said Brian to more than $600 million.
Zimmerschied, vice president Oklahoma’s linked-deposit
for its commercial crop lend- program has been dormant
ing team. since 2010 amid low inter-
BTC Bank in rural Bethany, Mis- est rates, but at least two
souri, had planned to turn in banks recently contacted
about dozen applications on the treasurer’s office about
behalf of its customers. But it the possibility of restarting it,
missed out entirely because said Deputy Treasurer Jordan
of the quick cutoff, bank CEO Harvey.q