borrower may qualify for no more than $50,000 in total 

 state financing; and (3) linked deposit loans must be 

 used exclusively to finance necessary production 

 expenses or for the short-term acquisition of livestock 

 for other than breeding purposes. 



The total cost of the proposed program would be 

 limited to the amount of interest actually lost by 

 investing state money at below market rates. 



Discussion 



This option could: (1) improve access to loans by 

 farmers who are having difficulties in obtaining credit; 

 (2) reduce the cost of capital, thus making loans to 

 farmers more affordable; and (3) enable a greater number 

 of farmers to generate a positive cash flow. Several 

 factors indicate both the need and the possibility for 

 success of this option in attaining these results. 



First, during 1985, 15.6% of all Montana producers 

 had loan applications refused by financial lenders, and 

 53.4% of those refused a loan could not secure financing 

 from any other lender.^ Second, interest rates for 

 agricultural loans averaged 12.9% in Montana during 

 1985, with interest rates reported as high as 13.5% and 

 14% in many instances. •'■^ Third, according to the 

 Montana Cooperative Extension Service, each drop of 1% 

 in the current interest rate for agricultural loans 

 would allow approximately 400 more farmers to obtain a 

 positive cash flow for their operation. -'■■^ 



At least by one expert analysis, state linked 

 deposit programs are popular with state governments 

 because they are a quick, inexpensive way to assist both 



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