The Pros And Cons Of Alternative Lending


By Anna-Lisa Laca, MILK, Online and Business Editor

via AgWeb - Feb 8, 2018


Producers throughout farm country are relying more and more on loans to stay in business, as the economic picture remains bleak. But, what do you do if your bank turns you down? Welcome to the world of alternative financing. This kind of lending isn’t new. Companies like Upstart and LendingClub have been providing non-traditional lending for years.


However, this category is newer to the ag industry. Companies providing alternative financing to farmers include Ag Resource Management, Conterra Asset Management, Farmland Partners, Farmers Business Network, AgAmerica Lending, John Deere Financial and CHS.


Non-traditional lending has risks, but it provides additional options for farmers, according to Peter Martin, principal and finance consultant at K•Coe Isom. In challenging times, these lenders will be less stringent with borrower requirements. “They will lend on what we think is going to happen going forward, instead of what has happened in the past,” Martin says.


Non-traditional lenders should be used like a physical therapist for your business, says Curt Covington, senior vice president of agricultural finance for Farmer Mac. “The point of going to one of those lenders is to get your business rehabilitated so you become a viable borrower for a traditional bank again,” he says. “You just can’t go to a non-traditional lender with the hopes that everything will be OK somehow. You’ve got to go there with the mindset that this is a three-tofour- year plan [to restructure].”


What To Know. Covington and Martin agree distressed borrowers are more likely to agree to financial terms they wouldn’t normally take. “We get to the point where we’re so desperate that we forget to ask the hard and important questions,” Covington says. “One of the things you have to do as a distressed borrower is get good advice outside of the alternative lender. Make sure you’re getting good competent advice from an independent third source.”


Martin cautions that not everyone working in this space has your best interest in mind. Think twice about anyone charging you an upfront fee for this kind of service. Have a lawyer review any deal you do with a non-traditional lender because they are not federally regulated. Ask smart questions of new lending partners.


Covington recommends asking: How long have you been doing this? What’s your philosophy on lending money to someone like me? How do you structure these deals? Aim to select a reputable nontraditional lender who understands the risks associated with farming.




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