Missouri lawmakers have given final approval to a significant expansion of a low-interest loan program aimed at assisting farmers and small businesses. This move comes in response to the growing demand for government aid due to high borrowing costs. The program, known as linked-deposit programs, involves states depositing money in banks at below-market interest rates, which banks then use to provide low-interest loans to specific borrowers, such as those in agriculture or small business.
The Federal Reserve's efforts to combat inflation by raising its benchmark interest rate to a 23-year high of 5.3% have led to increased borrowing costs across the board. As a result, programs like the one in Missouri have become crucial in helping borrowers save thousands of dollars by reducing their interest rates by an average of 2-3 percentage points.
Missouri Treasurer Vivek Malek initiated the expansion of the program after receiving an overwhelming number of requests when the application window opened earlier this year. The legislation, which raises the program's cap from $800 million to $1.2 billion, is now awaiting Governor Mike Parson's approval.
While the expansion may cost the state $12 million in potential earnings, it is expected to generate economic activity that could offset some of these costs. Not all states have similar loan programs, but neighboring Illinois has a robust program that has seen significant growth in recent years. Illinois Treasurer Michael Frerichs recently raised the program's overall cap to $1.5 billion to accommodate the increasing demand from farmers, businesses, and individuals.
The success of these low-interest loan programs highlights the importance of government intervention in providing affordable financing options to support key sectors of the economy during times of high interest rates and economic uncertainty.
