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Changes occurring across the desk

Road Warrior: Be ready to supply documentation, credit scores might not be enough to secure financing.

June 6, 2024

3 Min Read
Credit scores don't tell the whole story for farm business.
Getty images/Peter Dazeley

I have worked with a wide range of agricultural lenders as an educator, as well as a borrower. Now that I am later in life, I also have the vantage point of many decades of observation and engagement. The changes in the agricultural field appear to be accelerating, which often impacts how one obtains and manages credit and overall financial services.

At one of the recent Midwest agricultural banking conferences, I requested that any of the 220 participants who were making loans during the 1980s to please stand up. You could hear a hush in the audience when only 12 people stood. Within the next five years, a large percentage of institutional knowledge of the tough economic cycles will be gone. The wisdom and perspectives of riding a downward spiral of a prolonged economic downturn will be history.

Changes ahead?

I am often asked what changes or observations are coming in the agricultural lending industry. The new agricultural lenders have diverse backgrounds and experiences. A number of the lenders are newly minted college and university graduates, but the big change is that they are not solely coming from the land-grant universities and agriculture institutions. Some of the new lenders are from urban or rural areas, but have limited agriculture experience.

However, do not discount them because they are eager to learn the lessons of the industry and the new practices and innovations. More individuals are making agricultural lending their second career because they have a desire to come back to rural areas later in life. To attract and retain lenders, more institutions are allowing employees to work remotely for a few days of the week. The pandemic accelerated this movement.

Credit scores are not enough

There is a definite consolidation of the agricultural lending industry in alignment with the agriculture industry in general. However, I caution that success is not about being big because one size does not fit all. This is one of the attributes that makes the agriculture industry special.

Yes, there are more credit risk scoring models that knock out some of the unusual requests and some of the new value-added industries. Expect more financial statement requests and analysis from your lender and credit analyst that may not have seen your farm and ranch business. In this case, accuracy and transparency of the numbers and trends will be critical for selling and marketing your situation to underwriters.

Some producers are utilizing nontraditional sources of credit to fill the gap, specifically for operating loans. One has to determine how nontraditional sources of credit fit into the debt service plan, cost of production, and overall debt position.

The return on relationship

Some lenders are offering educational programs for producers geared towards young farmers, transition and growth management, and women's groups. This often solidifies the return on relationship (ROR), which is still en vogue in agriculture and rural America.

Across the desk, your agricultural lender may work remotely or be a part of your advisory team. The field of agricultural lending is in a state of transition and alignment with the new generation of agricultural producers.

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