Ag lending has evolved in how ag credit is delivered and who is delivering that credit. Both agricultural operations and institutions that lend into agriculture have seen dramatic consolidation. The number of ag lending institutions have dwindled considerably in the last 20 years.
Often farmers and ranchers who have experienced stress and may need some sort of restructure have been asked by their lender to find other financing. Borrowers frequently question if it would be good consolidation to have all farm debt with one lender. Convenience and ease are common reasons for considering a single ag lender. At times, it works very well to have all farm debt with one lender. Especially if the lender can provide rates and terms for real estate and operating that fit a borrower’s needs, and if the lender is committed long-term to agriculture.
However, more times than not, issues arise over time. The cycles of agriculture are often reflected in the actions of lenders: when times are good, lenders are happy. In times of stress, agricultural lenders start looking for ways to reduce risk. This leaves borrowers looking for financing.
Overall, it is difficult for one lender to be all things to an agricultural borrower and to truly operate in the best interest of that borrower. As an example, an operation might benefit from long-term fixed rates on real estate, but its current operating lender has the real estate as collateral as well as all of your crop/livestock and really does not want to release the real estate. This is problematic if the operation has stress and the current lender does not want to restructure or if the borrower finds lower rates or better loan terms that would benefit the operation.
In times of extreme operational stress, working with a single lending institution can be disadvantageous. There are situations, such during restructure or forbearance, when refinancing an entire operation is not desirable. If one lender decides agriculture is too risky, borrowers need to find another lending relationship, often when timing is not opportune.
Generally, diversity of lending relationships is a positive thing. Working with multiple lenders allows farmers and ranchers to find a variety of rates and terms. Different lenders also have different credit guidelines, which may allow more flexibility as operations grow. The value created by a diversity of lending relationships far outweighs what may be viewed as an inconvenience. After all, if you are a corn farmer would you really plant your whole farm to one hybrid?
Conterra Ag entered the agricultural lending market 6 years ago. We focus exclusively on agriculture and specifically financing real estate. Conterra has grown assets to over $4 billion in 6 years. Over 90% of the debt that Conterra provides to farmers and ranchers is to borrowers that are highly qualified. The other 10% is lent to borrowers that have experienced stress and need some sort of restructure.