When you’re running a farm or ranch, securing financing is crucial to your success. However, with so many lenders out there, it can be overwhelming to figure out which option is best for your business. Two common types of lenders are private ag lenders and traditional banks. It’s important to compare the farm loan options, agricultural loan requirements, and terms available from different lenders.
Here’s a comparison between private ag lenders and traditional banks:
Interest rates: One of the biggest differences between private ag lenders and traditional banks is interest rates. Private ag lenders often offer interest rates that are competitive with traditional banks, but they may also be willing to take on more risk. This means they typically are able to offer options to borrowers with lower credit scores or less collateral, which translates to loan programs and options with rates that are priced to risk. On the other hand, traditional banks typically have more stringent credit requirements and may offer lower interest rate products to borrowers with higher credit scores and more collateral.
Collateral requirements: Collateral requirements are another important factor to consider when choosing a lender. Private ag lenders may be more flexible with collateral requirements, as they may be willing to accept a wider range of assets as collateral, such as livestock or equipment. Traditional banks may have more specific requirements for collateral, such as real estate or other fixed assets.
Repayment terms: Private agricultural lenders may be able to tailor repayment terms to fit a borrower’s specific needs. This can include longer loan terms or seasonal payment schedules that align with the cash flow of the operation. Traditional banks may have more standardized repayment terms and may not be to customize terms.
Loan Size: Loan capability is another factor to consider. Private ag lenders may be more willing to offer a wider variety of loan sizes, from small to large, which can be helpful for smaller operations seeking short-term financing or large agribusinesses looking for wide-scale expansion. Traditional banks may have higher minimum loan amounts and may be more narrowly focused when it comes to loan size and length of maturity.
Application process: Private ag lenders may have a more streamlined and personalized application process, as they may have a smaller staff and be more focused on building relationships with their clients. Traditional banks may have a more bureaucratic application process, with multiple layers of approval and more documentation required.
Both private ag lenders and traditional banks can offer financing options for farmers and ranchers, but there are some key differences in loan options and terms. It’s important for farmers to compare their options and evaluate which lender is the best fit for their specific needs. When searching for farm loans and ag financing, be sure to consider all the factors mentioned above, and do your research to find the lender that will help you achieve your goals.
Conterra Ag Capital focuses exclusively on agriculture, providing traditional farm and ranch loans, development and alternative lending to America’s farmers and ranchers and agribusiness. As a private lender, Conterra has flexible farm loan programs available to meet the needs of producers. Contact your Conterra regional relationship manager today to learn more.
Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.