A pair of North Carolina financial co-ops serving farmers are asking customers whether they'd like to cut their interest rates on loan repayments.
Thousands have said yes.
"I just about fell out of my chair," Billy Adams, president of a family owned wholesale nursery and sod farm in Willow Spring, said about his reaction to his loan officer calling this spring offering to cut his loan costs.
While many banks are struggling and have pulled back on lending, AgCarolina Financial and Carolina Farm Credit have offered borrowers lower interest rates, The News & Observer of Raleigh reported Tuesday.
Nearly 5,800 fixed-rate loans to farms and agribusinesses in more than 80 North Carolina counties have had interest rates lowered in the past two years by the lenders, which are farmer-owned financial cooperatives. Both are part of the nationwide Farm Credit System that Congress created in 1916 to provide a dependable source of credit for American farmers.
"If you compare our business structure to other lenders that aren't cooperatives, their objectives are more profit-driven and less service-driven," AgCarolina Financial president Gene Charville said.
The government-sponsored credit system creates an unfair advantage over the banks it competes with, said Bert Ely, a consultant for the American Bankers Association.
"The farm credit system is able to borrow very cheaply ... because of the implicit" backing of the federal government, Ely said. He also complained that the farmer-owned cooperatives nationwide skim off the cream of the crop by lending "to those who are least in need."
The cooperatives' business model allows them to lower interest rates on existing loans without reducing their profit margin.
The cooperatives have no deposits, which are what banks use to fund loans. Instead, the cooperatives borrow the money from investors by selling farm credit bonds.
The cooperatives have seen the rates they pay for their borrowing fall along with other interest rates. They are passing on lower costs to their customers and members.
"We are basically refinancing our high-rate debt and allowing farmers to do the same thing," Charville said. "This helps people lock in their lower expense for the long term."
Lowering their customers' interest payments also helps the cooperatives by improving the farmers' finances.
"It helps the qualify of our loan portfolio. It helps them be more successful," Carolina Farm CEO Mike Morton said. "And when they're successful, we're successful."
Some borrowers who modified their loans have been contacted a second or even a third time and told that they could save more money by doing it again.
Adams said he modified his loans twice this year, saving more than $4,000 this year.
Hyde County cotton farmer Randy Hubers also lowered the interest rate on his loans twice this year after being contacted by AgCarolina.
"I already had a low rate," Hubers said. "I didn't expect it to get better."