WBA Agricultural Bankers Section

Wisconsin Ag Bankers Need Your Immediate Action
The Farm Credit System (FCS) represents a serious and growing threat to Wisconsin Agricultural Banking. Bankers should be concerned about the FCS’s expansion plans via the HORIZONS Project (see the December issue of Wisconsin Banker for more information). The potential scope, implications, and consequences of this project are unprecedented. Frankly, the HORIZONS Project would enable the FCS to lend to anyone, anywhere for any purpose.

Our partners at the American Bankers Association are working hard to fight this new project on the national level, but your action is needed to fight it on a state level. Contact your Congressmen and Senators. To help in this effort, WBA has prepared a sample letter for you and can be found here (link).

Need some background on HORIZONS? Read Bert Ely’s report The Farm Credit System: Lending Anywhere but on the Farm.

The FCS’ ambitions with the HORIZONS project are threatening to Wisconsin ag lenders, so please do your part and let your elected officials know. Find contact information for your Representative and for your state Senators.

A Message from Dairy 2020

To: Wisconsin Ag Lenders

From: Irv Possin, Dairy 2020 Director

Below are a number of issues Commerce would like to address to improve submission timing and clarification of some of the qualifications for MVP. It also addresses the funding and delays in funding. Commerce has received an extra ordinary number of funding request from manufacturing and dairy businesses in fiscal 2006-07. This has depleted our funds and has challenged us to look for other sources of funds. The MVP program in the past years have used about $3.0 million and thus far in fiscal 2006-07 we are over $5.0 million. It is exciting to see the interest and commitment dairy producers in Wisconsin are making in their businesses. However, Commerce has to balance the demand with the funds that are available. There are further changes in the MVP program on the governor’s desk that when approved should help in bring about the balance. If you have any questions, please call (920-322-1888). Thanks for the great job and service you are providing the dairy industry. We appreciate you patients as we work to find sources of additional funds for MVP.

Funding for Dairy 2020 Early Planning Grants to hire a consultant to develop a business plan has not changed.

MVP Program Policies

MVP Application Late Submission

There seems to be a trend of more MVP applications being submitted in the middle or near completion of the project.  This causes the applicant and the consultant to expect their application to be placed on the fast track with a quick turn around and/or asking within four or less weeks for a waiver to the policy to not buy cattle before a Commerce letter of commitment has been received.

Late submissions usually require a bridge loan to purchase cattle to get cash flow going. A disadvantage to a bridge loan is it causes more paper work and cost for the applicant and lender. The lending institution may also get concern when the MVP loan doesn’t fill the gap as soon as they would like because they may have extended too much credit with the addition of the bridge loan.  The final analysis is Commerce gets blamed for being too slow in approving the MVP loan when in actuality Commerce wasn't given enough time to due diligence and process the loan.  

Commerce funds MVP loans from three funding sources that will vary in approval time. MVP loans funded thru Community Development Block Grants (CDBG) usually take four to six weeks to get a letter of commitment. Once the applicant signs the letter of commitment most loans are granted to the County/Regional Revolving Loan Fund (RLF) which than has to have a hearing and County Board approval for their application to receive the money. The applicant will than make MVP payments to the County/Regional RLF. A few counties do not have a RLF, than the payment is to Commerce.

The second source of funds is thru the Rural Economic Development Fund (RED) managed by the Wisconsin RED Board. RED funds are state funds and are generally used for smaller projects. The board meets monthly but may skip a month if there is insufficient project activity. The applicant payment is to the State of Wisconsin.

The third funding source is the County/Regional RLF where approval time is unpredictable depending on a variety of reasons too numerous to explain in this letter. Payment is to the RLF.

Therefore, it takes time to process the MVP loan. The dairy producer may spend months shopping around for money.  They will take months if not years deciding on the type of building and equipment to purchase and than several months for bidding.  Thus getting a loan to purchase cows that produce the income to pay for the farm or new buildings and equipment should receive equal if not greater time in the decision making process.    

Thus, submission of the MVP application should be at the time the lender makes a commitment to the MVP applicant on the project.  It is the responsibility of the MVP applicant, the lender and the consultant to submit the MVP application on time.   Late submission of MVP applications if the project is at or near completion will be disqualified.   Cattle purchased before or within four weeks after submission of the MVP application will be disqualified. MVP loan approval will continue to be subject to the applicant meeting qualifications, underwriting specifications and available funds. 

Available Funds

Thus far, all 44 qualifying MVP applications submitted have been funded in fiscal 2006-07 (ten more than other years so far). Although the approval process has been slowed for some applicants due to locating the funds to fund the project, we have been successful in getting all the projects funded. The other option would have been no funds available. Early submission of MVP applications will be more important in the future with the change to a MVP annual allotment.  If the number of funding requests exceeds funds allotted for the year (from CDBG & RED), applicants will be denied due to insufficient funds available. It is unknown whether Commerce will approve applications when funds come available.

Thus getting the application into the Commerce loan review process early in the funding cycle will be important. Commerce’s fiscal year is July 1 to June 30 the following year.  If state funding sources are depleted, the applicant may apply to the County/Regional RLF for funding if funds exist.

Equity Gap Requirement

In the MVP program changes that are on the governor’s desk there will be a maximum post close equity qualifier of 45% or less. The MVP program from the beginning has been an equity gap financing program, to provide additional equity to help projects move forward. In the beginning of the MVP program Commerce waived the equity gap requirement to get participation. Now we have more participation than funds and the requirement will be enforced. It is important to tell your clients that the MVP program is designed to go to dairy producers that have the greatest need. Therefore, even though the governor hasn’t approved the changes, please discourage anyone applying with more than 45% equity post close. When the governor does approve the changes it is likely they will be placed into effect immediately.

Capital Investment Requirement:

Capital investment is required to receive a MVP loan and normally this is not a problem. Thus far in the fiscal year 2006-07 the average MVP loan is $107,648 and capital investment $1,364,298. Recently, several leased dairy operations were cut in their MVP funding by 50% due to little to no capital investment.

One situation was where a son applied for a MVP loan to get started in the business while the parents made the capital investment in buildings and equipment. The son had no capital investment, except cows, and leased space from his parents to house and milk. If possible, it would have been better to have the MVP application submitted and awarded to the son and parents. How the dairy separates who pays internally because of FSA beginner farm loan or other reasons is not important to Commerce.

The second situation was a new start up leasing facilities with little capital investment. I argued that many new start ups have limited funds and are investing all their money in cows to gain equity to buy a farm. In both cases I lost the discussion because other businesses have to show investment in infra structure and dairy should too. Therefore, inform new start ups if they have little to no capital investment, their MVP request will likely be reduced 50%. Otherwise, I would wait in submitting a MVP application when the client buys a farm and expands the herd. This discussion is still on going at Commerce. If you have a strong feeling about new start-up dairies leasing facilities MVP funding policy, send me an e-mail. (ipossin@commerce.state.wi.us)

Upcoming Events:

Oct. 28-31
2007 National Ag Conference, Hyatt Regency, Milwaukee


Need livestock facility siting information?
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WBA Agricultural Bankers Section Committee 2007-2008
The WBA Agricultural Bankers Section Board includes bankers who specialize in agricultural lending. The Board Members follow government relations issues pertaining to agriculture, oversee and help plan the WBA Agricultural Bankers Conference, the WBA Advanced Ag Lending School and the Foundations in Agricultural Finance Workshop.  Board members have two to three meetings and three to four conference calls per year. Section members receive a quarterly newsletter, membership directory and educational discounts. Membership in the Ag Section is $50 per year per individual. There are currently 164 members.  For more information, contact WBA's Janice Olson at 608/441-1208.

WBA Agricultural Bankers Section Committee Members 2007-2008