AG Resource Management Blog - Credit Crunch in Farm Country (Part 2)
ADDRESSING THE ISSUES
Leroy Startz has some meaningful solutions and caveats for credit crunched farmers:
“For the guy who still owns all or some land there are some products out there where the landowner can go to either restructure his land debt, increase his mortgage value on his property, or pull some additional equity out. But as I said before, a lot of them have done that for several years so the equity is beginning to run thin. If you were lucky enough to buy your equipment before we got into this low commodity price environment, there may be some value in that equipment that you can borrow against to help bridge the gap in operating capital that might be needed. There are some programs out there being provided by some of the larger equipment companies that have unsecured credit available on a credit scoring type basis and people are tapping into that as much as they can, but again that is eroding as well as credit scores are not as good as they were 5-10 years ago.”
THE RISE OF ALTERNATIVE LENDING SOLUTIONS
The above scenario can read as somewhat bleak, but Startz is hopeful about the rise of alternative lending solutions, and he’s actively recommending them to clients.
“I think the market is actually at a point now where it’s critical for them (farmers) to find alternative and non-traditional credit solutions. And there’s not a lot of them out there. Traditional credit is still primarily based in equity of land or equipment ownership. Now lenders are also feeling the struggle of trying to take care of their customers. But at the same time, they need to satisfy the needs of the regulatory body that controls what they can and can’t do. That’s where solutions like Ag Resource Management become a perfect fit.”
The barrier, Startz says, is in operators’ knowledge of their options in alternative lending. Tradition, regulations, and shifts in decision models can leave farmers in a bind of sorts.
“I think a lot of growers are a little on the lost side right now. A lot of them have had relationships with community banks for upwards of 30 years. And now because of regulatory limitations these legacy bankers are having to tell operators ‘look I love having your land loan and your equipment loan, but I just can’t do this crop loan anymore.’ And they are kind of walking away with their hands open wondering what do I do next? Where do I go?”