KEY TAKEAWAYS
- In the current economy, farmers are often unable to get the capital they need from the farm credit system.
- Fintech partnerships (with LOs, community banks, and others) can help expand farmer access to capital, improve customer retention, and preserve long-term customer relationships.
- Farmers can also find success going direct to agrifintechs, as illustrated by a recent loan that let a Minnesota farmer purchase 300 acres from his neighbor.
The ag economy has been strained for years now: high input prices, high interest rates, low commodity prices, uncertain trade deals, and more. Financial stress is at a seven-year high for farmers, and many ag lenders are responding by tightening lending standards.
For example, one community bank I talked to mentioned that they’re only lending to existing customers at the moment. And no wonder: nonperforming assets are up from a year ago and 70% of lenders are very or extremely concerned about grain operations (up from just 15% two years ago).
And yet, farmers still need capital.
There’s no quick fix here, but I am happy to say that what Growers Edge is building is part of the solution. Over the last year and a half, we’ve spun up an ag mortgage arm that makes it possible for farmers to find the capital they need from sources other than the farm credit system. Here’s what that looks like in practice.
For Farmers: Buy 300 Acres Next Door
Earlier this year, a farmer in Minnesota wanted to buy his neighbor’s land, which had just gone up for sale. Three-hundred acres, right next door. The dream.
But his community bank didn’t approve him for the loan. Luckily, he thought to look online to see if there might be any alternative lenders out there who could help. He found us, and we helped him secure a loan that let him buy the land and grow his operations years before he would have been eligible for a loan through Farmer Mac.
We’re able to make these kinds of transactions happen because we’re going outside the standard channels to finance ag mortgages. Farm credits and community banks typically lend from their own portfolios. Because of this, they have to be more conservative with their loan terms. They often can’t offer a 30-year fixed rate. But because we’ve partnered with other capital partners, we’re able to fund what would be considered non-prime loans elsewhere.
This can remove frustrating roadblocks for farmers. By clearing the path to growth, we’re making prosperity more readily accessible in the way it’s been for non-farm businesses for years.
For Rural Residential Loan Officers: Partner to Meet Your Customers’ Needs
Farmers aren’t the only ones who feel frustrated by limited access to capital. Rural residential loan officers often work with farming populations. But in many cases, when a farmer customer approaches their LO about an ag mortgage, the LO can’t help.
Either their financial institution doesn’t offer agricultural lending or the farmer doesn’t meet the institution’s loan standards. So the farmer is left to their own devices and the LO is unable to deepen the relationship.
I’ve heard plenty of anecdotal reports of this happening, and the situation isn’t likely to change soon, as overall credit risk is rising thanks to current economic conditions.
Again, the solution lies in tapping non-standard capital sources to fund loans. One way we’re doing that today is by partnering with individual LOs who are eager to better meet their customers’ needs. In this type of partnership, when a farmer customer asks their residential LO about ag lending, the LO can point them to Growers Edge. It’s a win-win: the LO gets a commission, and the farmer gets access to capital they wouldn’t otherwise be able to tap.
Of course, this model can also work at organizational scale.
>For Community Banks: A New Way to Deepen Customer Relationships
In many farming communities, banking relationships are still built and maintained offline. I think of my 80-year-old father, a dairy farmer in Wisconsin: he uses Google, of course. But I can’t picture him turning to the search engine to find a lender.
That mindset is fading among my generation of farmers and those younger than me. But it’s not just because these populations are more comfortable online. Part of the problem is that they’re learning (especially in the current economy) that their local lender often doesn’t have the capacity to meet their capital needs.
Just as online-only fintechs have been better able to meet certain personal finance needs than brick-and-mortar banks, online agrifintech companies are able to fund loans for a variety of ag lending scenarios that aren’t currently viable for the farm credit system.
Community banks can get the best of both worlds – and deliver the same to their customers – by partnering with fintech organizations that are able to fund loans they can’t. These partnerships empower them to meet more of their customers’ needs, which means those customers are more likely to call their LO or come into a branch in the future.
That’s important right now, when more and more “old-school” farmers are thinking about retirement and more and more digital natives are stepping into leadership.
The Future of Ag Lending Is Hybrid
When I talk to farmers, most of them agree that they want to maintain interpersonal relationships with their lenders – who are, in many cases, farmers themselves. Nothing can replace working with someone who not only understands your profession but is also a part of your community.
At the same time, farmers need capital solutions that actually let them fund and grow their operations. Luckily, this isn’t a zero-sum game. There is a world where farmers can both maintain their trusted in-person banking relationships and benefit from the financial innovations happening in the agrifintech sector.
The success of the nation’s farmers is, after all, something that benefits everyone. So it makes sense that the best solutions involve all parties collaborating to do what we do best.
If you’re an LO or a leader at a community bank and you’re interested in learning more about how partnering to fund more ag mortgage loans might work, don’t hesitate to reach out to me: brian.weis[@]growersedge.com.