Farmland Partners, a real estate investment trust (REIT), has launched an agricultural lending programme, alongside its current farmland buy-and lease business.
Loans are of $500,000 t0 $5 million at fixed interest rates with maturities of up to two years, according to a statement. The first loan, to a major Midwest farm operator, is secured by first mortgages on farm real estate and will give the borrower additional working capital during the fall harvest.
Luca Fabbri, Farmland’s chief financial officer, told Agri Investor that it is hard for farmers to get loans from banks because “traditional lenders look at not only the collateral but also the ability [of the borrowers] to have the cashflow to support that loan.” But the borrowers who are looking for loan are short of cash in the short-term, “so the banks really can’t operate well in that environment.”
He also said banks cannot really make pure asset-based loans because the banks do not want to ultimately own the collateral. However, Farmland Partners’ core business is to own farmland. “We have an advantage where if the borrower defaults we can lease the collateral back to him, therefore limiting the impact on his farming operation, whereas in a traditional default the farm may get sold to a competing local operator.”
“American farmers are the most successful producers in the world, yet they often are short of capital to expand their businesses and weather commodity price volatility,” Paul Pittman, chief executive of Farmland Partners, said in a statement. “The … Loan Program is another way we can help farmers succeed while giving our investors an attractive return.” Pittman said the new program will be a growing business for the Farmland Partners “in light of the market pressures facing farmers and the regulatory environment for traditional agriculture bank lending”.
Farmland Partners is the latest US institution to enter the agri lending sector, joining groups like the Ohio-based Heartland Bank, launched last year in November, and Prudential Agricultural Investment, which provides loans to individual landowners and large businesses ranging from $500,000 to $200 million.
According to Farmland, the programme addresses a market need created by short-term cashflow pressure on farmers who otherwise maintain solid balance sheet.
The New York Stock Exchange listed REIT recently raised $35 million in an equity offering. The REIT currently has 122 farms in its portfolio with an aggregate of 71,355 acres growing a variety of crops including corn, soybeans, wheat, rice, sunflowers, sorghum and edible beans. It bought a blueberry farm in Michigan in early July, introducing a permanent crop to the portfolio for the first time.