Secondary Credit Market Crucial to the Ethanol Industry

As the ethanol industry continues to grow, so does the need for additional financing. However, there is a lack of underwriting expertise with community banks and a perceived long-term risk associated with ethanol loans. If the number of renewable energy companies is to continue to grow, federal action must be taken to educate the lending community and provide banks with the tools needed to service the debt financing needs of the new companies. Renewable energy financing has its roots in production agriculture and farmer cooperatives served by the Farm Credit System, which is a government-sponsored enterprise (GSE) created by Congress in 1916 to provide American agriculture with a dependable source of credit. However, more non-farmers are now involved in the development of renewable energy, and these entrepreneurs do not have access to the Farm Credit System member institutions. Instead, they rely on community bankers for financing. For the most part, “Main Street” lenders have yet to develop an understanding of the underwriting necessary for financing ethanol and biodiesel plants, anaerobic digester projects, wood pellets plants and other sources of renewable biomass energy. Little education has occurred to teach community bankers how to best determine the financial viability of a renewable […]

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