So who is best positioned to win?
The ABA reports that more than 50% of bank-originated farm loans — 1.2 million loans, for a total of $74 billion — go to small farms. Of the 1.2 million small farm loans, 841,000 involve less than $100,000. Since small farms need so much credit, the banks most proficient in small business and community banking have the most to gain from this change in legislation.
Wells Fargo & Co (NYSE:WFC) is already adept in government-guaranteed lending programs, leading the nation with $456 million in loan production in the SBA’s 7(a) loan program year to date in 2013. That position suggests that the bank can easily take advantage of expanded FSA programs for farms. Wells Fargo & Co (NYSE:WFC) has committed itself to the community bank model and is already reaping the benefits in the marketplace. Of the big banks, Wells Fargo & Co (NYSE:WFC) looks to be the lead horse.
Conversely, Bank of America Corp (NYSE:BAC) has not embraced government-guaranteed loan programs, ranking 61st in SBA 7(a) loans. Bank of America Corp (NYSE:BAC) is struggling to grow as it continues to battle with its legacy Countrywide portfolio of bad home mortgage loans. That struggle seems to leave the company in no position to capitalize on farm-loan opportunities.
Ag lending is a highly specialized business with unique risks and opportunities. The best ag lenders will always be the specialists — the banks with a culture built around the farming business. But for the larger institutions, lending effectively to farms can be a lucrative way to increase loan production, diversify the portfolio, and differentiate among the competition on the ground and in the markets.
The article A $277 Billion Opportunity for Lenders originally appeared on Fool.com.
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