Pub. 9 2014-2015 Issue 1

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. O N APRIL 21, U.S. DEPARTMENT OF Agriculture Secretary Tom Vilsack announced a “$150 Million Investment Fund to Grow Small Businesses [and] Create Jobs in Rural America.” According to a USDA news release, this new fund “Now Allows USDA to Facilitate Private Eq- uity Investments in Agriculture-Related Businesses.” The fund will be managed by Advantage Capital Partners (ACP), which describes itself as “a pioneer in utilizing public-private partnerships to raise venture capital and small business capital for investments and loans in underserved areas.” This fund “is being formed under the USDA’s Rural Business Investment Program (RBIP). USDA utilizes RBIP to license funds to invest in enterprises that will create growth and job oppor- tunities in rural areas, with an empha- sis on smaller enterprises. Working through the USDA program enables licensed funds [such as ACP] to raise capital from Farm Credit System banks and associations.” [emphasis supplied] According to aUSDAnews release, three of the four Farm Credit System (FCS) banks (CoBank, AgriBank, and Farm Credit Bank of Texas) and five FCS as- sociations (including three of the four largest—FCS of America, Farm Credit Mid-America, and AgStar Financial Services) are “providing initial invest- ments in [ACP].” Howmuch of the $150 million they are providing is unknown. How FCS and ACP will work together also is unclear. Given FCS’ historic lack of interest in serving underserved com- munities, it is highly doubtful that ACP has carte blanche to invest as it sees fit. Technically, ACP (www.advantage- cap.com) will be licensed by USDA as a Rural Business Investment Company, or RBIC. An RBIC is comparable to a Small Business Investment Company licensed by the U.S. Small Business Ad- ministration. Although this license does not appear to give an RBIC any form of government credit guarantee, it is a USDA seal of approval that will help the RBIC raise capital. USDA announced that “it will be accepting applications for other new [RBICs].” Whether other RBICs will be able to raise capital from FCS institutions is unknown. The Farm Credit Administration (FCA), the FCS’ regulator, has not said anything publicly about its policy regarding FCS institu- tions investing in RBICs, but quite likely it supports this initiative since FCA Chairman Jill Long Thompson was USDA undersecretary for rural develop- ment from 1995 to 2001. FCA’s apparent embrace of RBICs represents a complete reversal of its decision in November 2013 to abandon its eight-year Investments in Rural America “pilot program.” However, in abandoning that so-called pilot pro- gram, the FCA stated that henceforth it would approve such venture-capital investments on a case-by-case basis under existing regulations. Unless the FCA states otherwise, it appears that FCS institutions can sidestep that case- by-case requirement by investing a large amount in an RBIC which in turn will do the risky venture-capital investing. It will be interesting to see the extent to which FCS institutions suffer losses on Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2014 Bert Ely USDA Promotes FCS Venture-Capital Investing  Bert Ely — continued on page 30