ARM Pioneers Alternative Lending Aimed at Serving Farmers
By Mark Branch, Co-Founder and President of Ag Resource Management
The term “alternative lending” has gained in popularity since the financial crisis of 2008. The alternative lending space in agriculture refers to the various non-traditional financing options available to farmers and agribusinesses. This can include peer-to-peer lending platforms, crowdfunding, and other forms of alternative lending that are not provided by banks. These alternative lending options can provide farmers with access to capital that they may not be able to obtain through traditional banks and can help support the growth and development of the agricultural sector.
It is no coincidence that Ag Resource Management (“ARM”), an alternative lender, was founded in the aftermath of that crisis in the Louisiana Delta on the idea that farmers’ capital needs were underserved. Post- financial crisis, those challenges would continue to increase due to added regulations on the traditional banking system.
Farmers in the Louisiana Delta region deal with their own unique set of challenges. In order of importance, those are weather, weather and weather. Crop insurance, which is backed by the US government, helps to protect farmers’ from failing due to do due to weather and other events covered by the MPCI program. Crop insurance is the backbone of ARM’s unique form of alternative lending.
Prior to ARM, most farmers could only borrow what they needed by pledging everything they owned.
ARM changed that and gave farmers access to the capital needed to produce a successful crop. Farmers being underserved were generally in certain categories:
- Beginning farmers,
- Generational transitions,
- Large or leveraged operations and
- Lender transitions away from agriculture.
ARM was the original agriculture alternative lender.
- First to build proprietary software.
- First to develop a national footprint and platform with 25 offices serving 18 states.
- First to develop a diverse capital structure that was not reliant on a single source provider.
Farmers evolve, the successful farmers tend to grow larger. Today, modern farms require more capital than they did just a few years ago. Recent challenges in the banking industry highlight the need for a farmer to have access to diversified lines of credit.
Having total dependance on one lender can create risk in a time of challenge.
If we view Silicon Valley Bank as a test case, what’s considered highly valued today can be highly devalued tomorrow. Can that happen to your equipment and farmland – yes it can. Not being dependent on one lender is a significant advantage in times of crisis.
Alternative lenders may answer the farmers’ need for diversification. Like ARM, many other alternative ag lenders have an asset that they specialize in, such as land, equipment, livestock or as with ARM, crop production.
By securing only the crop as collateral for the crop loan, the production facility more closely matches the crop’s output. This allows for better budgeting prior to planting with less chance of carry-over debt once the crop is sold.
The farmer doesn’t risk losing equity in land or equipment because they normally are not pledged as additional collateral for a production loan shortfall. This sets ARM apart from all other production lenders. Our proprietary software allows us to precisely measure crop collateral, including crop, crop insurance and FSA payment, and to underwrite loans quickly.
As this is being written, it seems we are post-peak in the commodity cycle. During times of low commodity prices or short crops, it is beneficial for the farmer not to incumber his land to secure a production loan. We encourage farmers to consider the value of this concept – if the alternative ties up your most valuable asset, consider ARM’s approach to providing crop loan finance.
Mark Branch, Co-Founder and President of Ag Resource Management, has more than 20 years of experience helping farmers with financing for their operations.