As a rural landowner, I have had loans with a Farm Credit association and with a regional bank, and I know from personal experience that Farm Credit can go toe-totoe with the competition on interest rates and terms. But that's not where the real advantages lie. When I took my business to a commercial lender and compared products, value and service, the many benefits of doing business with Farm Credit quickly became apparent.
Farm Credit associations are customer-owned and controlled cooperatives, dedicated to their customers' success. Associations operate in the best interests of the agricultural producers, agribusinesses and rural landowners they serve--not some anonymous stockholders who have no connection to agriculture or the land. This does not mean that cooperatives can support liberal business practices. It simply means that if you own and use the cooperative, benefits will flow in a closed loop.
In a co-op, each member has a vote in director elections and a voice in the co-op's business. As a Farm Credit stockholder, you vote for the candidates who best represent your concerns on the board of directors, and you can even run for election yourself. It's a powerful feeling to know that you may have a hand in setting policy for your lender.
A customer always looks for the best interest rate when shopping for a loan. However, the quoted rate does not necessarily tell the whole story.
When Farm Credit associations do well, they often return a portion of their income to their customer-owners in the form of patronage refunds. Typically paid after year end, these patronage distributions have the effect of reducing the customer's interest rate.
Patronage refunds are a key difference between Farm Credit and commercial lenders. Although they may offer similar rates, when you consider the impact of patronage refunds and other advantages, it is clear that Farm Credit is more competitive.
Every Farm Credit lending association is part of the Farm Credit System, which is an AAA rated government-sponsored enterprise (GSE). As a GSE, the System has access to the U.S. and world money markets at rates that recently have been second only to U.S. Treasury rates. This dependable source of capital means that Farm Credit lenders can be more competitive and flexible than other lenders in their loan pricing. As long as Farm Credit leaders continue to produce excellent financial results, as they have in recent years, this advantage should continue.
GSE status also means that no loan is too big for a Farm Credit lender. If an individual association cannot handle a multimillion-dollar agribusiness loan by itself, it will invite other Farm Credit associations and/or banks to participate in the loan rather than say "no" to a customer.
Preferred Tax Status
Farm Credit associations--and thus their customer-owners-- benefit from preferred tax status, which enables them to operate more competitively and return a greater share of their earnings to stockholders. This is significant because taxes and operating expenses are the only external cash outflow in a well-managed co-op.
Farm Credit associations are not taxed on income from their mortgage portfolios. In addition, cooperatives, including Farm Credit associations, benefit from "single taxation" on patronage distributions. This means that taxes can be paid at the co-op level or passed on to the farmer. Because most of our co-op farmer-owners can file their tax returns on a cash rather than an accrual basis, it usually makes sense to pass the tax issue to the owner.
Expertise in Ag Lending
Farm Credit lenders are agricultural financing experts. After all, ag and rural mortgage lending is their only business. Most Farm Credit loan officers were raised in the country, usually on farms or ranches, and live in rural communities. Some have specialized training as timber appraisers or Secondary Market rural home lenders. Others have expertise in particular commodities. They understand the production and marketing cycles of the crops and livestock in their regions. Therefore, you don't have to educate our loan officers about your business when you apply for a Farm Credit loan.
If you are from a second or third-generation farm family, your parents or grandparents may have done business with Farm Credit. Established by legislation passed in 1916, the Farm Credit System was part of a tremendous congressional effort to build rural America. In the same period, rural electric, telephone and other such co-ops were established by similar legislative action. Over the years, co-ops have played a vital role in improving economic conditions in rural areas.
With 87 years of experience providing credit and financial services, the Farm Credit System is part of the fabric of rural America. Associations typically give back to their communities by supporting 4-H and FFA programs, commodity organizations and Extension education. While efforts such as these may not have a direct impact on your business, they contribute to a stronger, healthier rural community.
– Larry Doyle
Add up all these benefits, and you can see why Farm Credit continues to be the best financial partner for rural America.