I am writing in support of proposed legislation that will increase the loan size limits and broaden the eligibility requirements for lenders seeking loan guarantees under the Business and Industry Program of the Farmers Home Administration.

Our company's business is to arrange financing for industrial and income property projects. We have had many occasions to utilize the FmHA Business and Industry Program in carrying out our responsibilities to clients in rural areas, and therefore believe we have come to recognize and appreciate the Program's strengths and weaknesses. I have personally been involved as a Banker, a finance company loan officer, an employee of an institutional bond trader, and in our current role as borrowers' representative.

The principal purpose of an industrial loan guarantee program for rural areas is to induce an allocation to those areas of the available debt investment monies in the marketplace. In short, to attract investment that would not otherwise be forthcoming. The value to the rural community is an increase and often a diversification of economic activity that results in new employment opportunities, tax revenues, and stability.

The revised regulations governing eligible lenders, currently pending implementation, limit approval to domestic banks, savings institutions, and insurance companies. This requirement will effectively eliminate many of the potential lenders best qualified to carry out the intent of FmHA's programs; including independent finance companies, industrial companies' finance subsidiaries, certain mortgage banking firms, the lending subsidiaries or departments of major investment firms, and U.S. lending institutions that may be over fifty per cent owned by foreign entities.

We strongly believe that the eligibility of a lender should be determined by its ability to extend and service the proposed loan. Many "local" institutions are not staffed or sufficiently experienced to properly monitor businesses requiring sophisticated management and financial controls or subject to market pressures in areas with which the lending institution has no familiarity. The borrower, the community, and the FmHA are in this circumstance far better served

by a major industrial finance company with appropriate experience than by a local institution primarily geared to provide credit for merchants, or individuals. The local bank in turn is better served by having a non-bank institution provide the long term industrial financing, as it will then be able to offer its more traditional banking services to the borrower and its employees without competition from the FmHA lender and without exhausting its legal loan limit by absorbing the 5% unguaranteed exposure required by FmHA.

Many larger institutions grant credit on a regional or industry basis, in that they will not provide credit to areas outside their perceived geographical "market" or expertise. A very typical problem that we face in the banking industry is the refusal of a local bank to lead an FmHA loan because it is unfamiliar or uncomfortable with the industry in which the proposed borrower will operate, whereas the banks with comfort in that industry will not grant the credit due to the borrower's being located outside the banks' "market". This is most often the case when an industrial project is located in an agriculturally-oriented community and bank market, and represents a problem that is most often solved by nationwide non-bank institutions with industry expertise and no geographical bias.

The increasing trend toward deregulation of financial institutions will undoubtedly create "hybrid" organizations that do not fit the criteria for eligibility as an FmHA lender. We are seeing this situation now embodied in the creation of term lending functions at several of the large investment banking/ brokerage firms; all of which are being staffed by sophisticated, competent personnel. We believe that these organizations would be ideal for participation as an FmHA lender, since they can provide expert credit analysis, secondary market access, and services complementary to local banking institutions.

In summary, we believe that FmHA's loan guarantee programs should be run as a service to the rural community, in that the lender best qualified to provide a successful financing might be presented and approved, regardless of how and by whom it is licensed. Loan amounts should be judged by the economic benefits that will be provided within the context of conditions in the community and available funds rather than by arbitrary loan limits. In this way, FmHA can provide maximum benefits with maximum assurance that the borrower will succeed and the community will prosper.

Thank you for your consideration.

Very truly yours,

BELRIDGE CAPITAL CORPORATION

See A William

Lée A. Williams
President

The U. S. Commission on Civil Rights presents this report to you pursuant to Public Law 85-315, as amended.

This report examines problems confronting black farmers and the historical and current conditions--racial discrimination, lack of institutional economic support, commercial lending practices, commodity and income supports, and tax structures geared to benefit large farm operations, and others--that have contributed to the loss of black-operated farmland in the past, and threaten the survival of black-owned farms in this country today. It reviews the farm credit programs of the Farmers Home Administration (FmHA) of the U.S. Department of Agriculture (USDA) because of its role as the principal public lending institution for this Nation's rural communities. Finally, the report evaluates civil rights policies and enforcement activities at various administrative levels within USDA and assesses their impact on loan services provided to black farmers in its farm credit programs.

The Commission finds that these FmHA credit programs have the capability to provide immediate direct assistance to black farmers to make their farms more viable and to prevent further loss of their lands. However, FmHA has not given adequate emphasis or priority to the crisis facing black farmers; thus, despite their disproportionate need, black farmers are not fully benefitting from FmHA loan programs. In some cases, FmHA may have hindered the efforts of black small farm operators to remain a viable force in agriculture. Furthermore, as the Commission has found in the past, USDA and FmHA have failed to integrate civil rights goals into program objectives and to use enforcement mechanisms to ensure that black farmers are provided equal opportunities in farm credit programs.

We

The Commission believes that its recommendations for improving civil rights enforcement within FmHA programs will address, at least partially, some of the factors contributing to the rapid decline of black-operated farms. urge your consideration of the facts presented and ask for your leadership in ensuring implementation of the recommendations made.

I trust you will find this report informative and helpful. If you have any questions, please do not hesitate to contact the Congressional Liaison Division at 254-6626.

Respectfully,

FOR THE COMMISSIONERS

Auth Dith

ARTHUR S. FLEMMING
Chairman

Enclosure

As you are undoubtedly aware, last February the U. S. Commission on Civil Rights released a report to Congress entitled, The Decline of Black Farming in America (copy enclosed). The report examines problems confronting black farmers and the historical and current conditions that have contributed to the loss of black-operated farmland in the past, and threaten the survival of black-owned farms in the U.S. today. In addition to other findings, the report indicated that black farmers are in particular need of the so-called "limited resource" loans available through the Farmers Home Administration.

In view of the pending consideration by the House of H.R. 5831, legislation reauthorizing lending ceilings for FmHA's real estate and operating loan programs, I would appreciate your providing me with responses to the following list of questions.

1.

2.

3.

4.

How has FmHA responded to the Civil Rights Commission's
report? What actions has FmHA taken in response to
the Commission's recommendations?

How does FMHA plan to deal with the special problems confronting black farmers?

What is being done to ensure that minorities receive their proportionate share of limited resource loans?

How does FmHA respond to the Civil Rights Commission's findings that in thirteen States, white borrowers are more likely than black borrowers to receive their loans at low interest rates?