ALTERNATIVE FINANCE OFFERS SOLUTIONS
After seeing years of tightening margins, declining commodity prices and eroding equity, Ag Resource Management (ARM) developed the Ag Input Loan to help bring equity back to farmers who need it through a partnership with ag retailers and ag input distributors. Retailers have long-standing relationships with their customers, but they may be concerned about the credit quality or their cashflow and aren’t able to carry the farmer’s unsecured trade credit for the season. ARM can partner with the distributor, then take the distributor’s input sales and convert that to a secured loan transaction. This makes it part of an overall budget that ARM manages and monitors throughout the growing season.
“Ag Resource Management pioneered the concept of monetizing crop revenue streams. By combining the math and science of determining both yield and price market values and their relative insurance values, ARM can reliably predict a farm’s potential revenue stream.” -Leroy Startz, Director of Market Channel Development at Ag Resource Management
The retailer can then secure the sale of inputs to the long-term farmer-client and wait until the crop is sold for payment. They benefit from not having to carry accounts receivable on an unsecured trade credit status. They’ve now become part of a secured loan transaction because of their partnership with ARM.
As a forward-looking capital provider, ARM does not rely on land or equipment equity to make a loan decision. Rather, the loan decision is based on the farm’s capacity to generate an income stream from a growing crop. To do that, ARM uses a proprietary financial model to apply appropriate discounts, which generates a risk-adjusted crop loan that syncs with the farm’s budget. In the event of a crop failure, the revenue stream is protected with a well-structured crop insurance policy that maximizes farm revenue.
Once established, ARM sets up a systematic process to help manage risk on the loan by maintaining a close working relationship with the farmer. For example, ARM helps the farmer acquire the proper amount of insurance, spend capital on the inputs required to realize the highest potential yield and pay the loan when the crop is harvested. This in-depth involvement in the operation increases the chance of success.
Offering the Ag Input Loan benefits the retailer in two ways: He maintains his long-term relationship with that farmer, and he can offer a credit product that allows him to compete with other ag retailers who are trying to sell to the same farmer. However, the retailer has the advantage of shared risk with ARM, working under a well-documented credit structure.
ARM may also be able to help farmers who have filed bankruptcy. ARM does this under special provisions and protection provided by the bankruptcy court.
To learn more, contact your nearest Area Manager or visit us at armlend.com