While farmland real estate values tend to hold steady or appreciate, farm income tends to be much less stable. Using land as collateral for loans could serve as the tool for building consistent success in the years ahead for some farming operations.
A disclaimer before discussing this subject: Farmers have to remember that loans come due and are meant to be paid back. It’s possible to get in a situation where the farmland, owned by a family for generations, may have to be sold or could be foreclosed on.
Farm income has gone down year-over-year 44 percent of the time during the past 50 years, said Brian Philpot of AgAmerica Lending (AgAmerica).
Is there a way that existing or new farmers can use the value in their farmland to soften the financial blow during those difficult times and charge ahead in good times? Philpot invites farmers to ask this question and see if his company can help. He is president/CEO principal owner of AgAmerica, based out of Lakeland, Fla., and Boise, Idaho. Founded in 2009, AgAmerica offers a variety of loan products with terms ranging from 18 months to 30 years. The company also purchases mortgages from other lending agencies.
As a non-bank ag lender, AgAmerica is less limited by regulations that are required of FDIC-insured lenders.
While AgAmerica uses land as primary collateral, the company’s intention is to provide flexibility in products to compliment the farmer’s volatility in earnings – rather than take land. The company, with about 70 employees, will lend money only to those who can afford it based on their operation, cashflow and farmland value.
“There is a fine line between risk appetite and skilled operators. We want to be the lender to help in good and bad times, but we have to also have confidence in the farmer’s ability to mitigate risk,” said Philpot.
To qualify for a farm loan from AgAmerica, a farmer must own or plan to buy 25 acres or more of ag land. The total amount of the loan must be more than $50,000; the loan amount must be less than 75 percent of the property’s value, and the program is only open to American citizens or U.S. resident aliens. Spouses must sign for the loans if both names are listed on the land deeds used for collateral.
There are a few different ways a loan from AgAmerica could help farmers. In some cases, the lending business could provide money for cashflow or payments based on land value, with repayment to AgAmerica spread out over time. One loan type only requires interest payments for the first 10 years.
A farmer may also be able to consolidate their loans through an AgAmerica loan to free up money, reduce their interest rate, and simplify loan payments.
AgAmerica can sometimes lend money to a farmer who hasn’t been able to get financing through a traditional method.
“There are lean times, and if we can offer products in that area, it’s a value that we can provide as opposed to other lenders,” said Philpot.
Since the company began conducting business in 2009, they have foreclosed on just one loan where they took the property in lieu of loan payment, he said.
The key to farm-business success, says Philpot, is a thorough and proven understanding of financing.
He pointed out that successful farmers are smart. They work hard, are progressive and are learners. Equally important is their solid financial or accounting expertise.
A respected Certified Public Accountant – someone who can counsel the farmer on how to structure the farm, someone who can help the farmer get the proper deductions and be proactive in financing – is very important for farm success, he added.
That’s been important for AgAmerica’s success too, he said. With limited regulation and a low expense profile, the company offers loans throughout the U.S. using a modern financial structure.
“If your best asset, your strongest asset is the soil you own, then that should have the lowest interest rate of anything you can borrow on,” said Philpot. “Why not access that as opposed to those things that are going to cost more in interest?”