Reduced Interest Rates Help Save Farmers and Ranchers More Than $56 Million in Loan Conversion Program
Nov 30, 2010
Omaha, Nebraska (November 30, 2010) – More than 22,000 farmers and ranchers in four Plains states are realizing the benefits of lower interest rates – totaling more than $56 million in first-year savings – thanks to a program offered by one of the region’s leading ag lenders.
Since 2009, Farm Credit Services of America has offered a loan conversion program for existing customers who would benefit from decreasing interest rates on long-term, fixed-rate notes. The cooperative serves farmers and ranchers in Iowa, Nebraska, South Dakota and Wyoming.
“As market interest rates have declined, so has the cost of our funding,” said Craig Kinnison, senior vice president and chief financial officer of FCSAmerica. “As a mission-driven cooperative, we are owned by customers and uniquely positioned to take a long-term view. We used this opportunity to help our customers reduce their interest rates while also improving the financial strength of their cooperative due to favorable funding costs and the resulting positive impact on profitability.”
Local office staff alerted customers to the opportunity by phone and mail. About 8,100 took advantage of the program in 2009, Kinnison said, reducing their interest rates by an average of 1.13 percent and cutting interest payments by approximately $17.5 million collectively in the first year alone.
The conversion program’s pace picked up through the first 10 months of 2010 as interest rates continued to decline, Kinnison said. Through October 31, more than 14,300 additional customers had loans converted to lower rates – an average reduction of just over 1 percent – while reducing total interest payments by approximately $38.8 million in the first year the new rates are in effect.
“Most of the converted loans are for real estate, primarily land,” Kinnison said, “but include other fixed-rate loans such as those for buildings and equipment as well. Customers have saved more than $56 million in interest payments during this program’s first year and 10 months. And, since the interest savings continue each year for the life of the converted loans, which may vary from three to 30 years, the long-term impact will be significantly greater than our first-year calculations.”
“Simple” Program Will Continue
Kinnison said the conversion program is simple. FCSAmerica retail offices send customers with eligible fixed-rate loans a short letter noting current loan principal balance, fixed-rate period expiration date, loan maturity date, current interest rate and the new rate. Customers have five days to accept the conversion offer to take advantage of the specified rate savings.
“Since there is a conversion fee, we make the offer only to customers whose interest savings would cover the fee in two years or less,” Kinnison said. “The loan conversion has to make financial sense for a customer and the organization before we offer it.”
Customer reaction has been very positive, Kinnison said. “We had quite a few phone calls asking whether the offer was legitimate, because customers couldn’t believe a lender was calling them to reduce their interest rates,” he noted. “We assured callers that yes, indeed, it is a legitimate offer. It demonstrates the value of a customer-focused, cooperative lender that consistently offers market-based interest rates.”
Kinnison said the conversion program would continue “as long as the interest rate environment is beneficial to customers and the cooperative.” If they haven’t already been contacted, Kinnison suggested customers contact their local FCSAmerica office to discuss financing opportunities during this period of historically low interest rates.
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About Farm Credit Services of America:
Farm Credit Services of America is proud to finance the growth of rural America, including the special needs of young and beginning producers. With more than 85,000 customers and assets of $15.3 billion, FCSAmerica is one of the region’s leading providers of credit and insurance services to farmers, ranchers, agribusiness and rural residents in Iowa, Nebraska, South Dakota and Wyoming.