Bridging the Gap Between Farmers and Finance
Do farmers and ranchers have access to enough credit? The answer is complicated, but, in short, they don’t, but it isn’t always for the reasons you think.
There isn’t enough ag credit out there.
In 2020 the World Bank estimated that two billion adults worldwide were excluded from credit – they were essentially “unbanked.” This was especially true in rural areas, where the population is made up of small farmers. Without access to credit or enough credit to purchase inputs like fertilizer and adequate seed, farmers are stuck in a pattern of low productivity, small yields, and limited income.
We aren’t just talking about farmers in developing countries, either. In the US, small and medium-sized farms struggle to access enough credit due to traditional lenders' unwillingness to lend to production agriculture. These family-owned farms, often first-generation, are deemed “too risky” and are essentially underbanked. These farmers are stuck in a cycle of trying to cash-flow their business in an industry where the barriers to entry are entirely financial.
And yet, three hundred billion dollars ($300B) per year of additional agricultural investments is needed over the next decade to feed 10 billion people by 2050. Our society needs small and medium-sized farms to grow and produce more crops.
The current system underserves populations of farmers and potential farmers.
High seasonality, irregular cash flows, and fluctuating market conditions characterize agricultural production. This makes it difficult for farmers to access credit from traditional lenders in typical times and almost impossible during times of need. Lending to agriculture is deemed specialized and risky.
And yet, the 10-year US Ag Loan default rate hovers around 2% - similar to the traditional business default rates. Per institution lending standards, only 25% of US farmers are considered prime loan customers. This means 73% of US farmers cannot obtain sufficient capital or the best rates, terms, and services to grow their operations, even though the data shows that farmers are a good bet.
If you are a beginning farmer, accessing credit is even more challenging. 27% or 900,000 farmers in the US are considered beginning farmers, but lenders are hesitant to touch them. Beginning farmers are almost entirely excluded from the ag lending sector, except through special USDA-funded programs. If we want to encourage more farmers, not fewer, the system needs to open the gates.
Traditional ag lenders are not adapting to a digital marketplace.
Sometimes the issue isn’t that the lender is unwilling to lend to a farmer but that they are not reaching the farmer. Most farms are in rural areas, away from major city centers. The isolation of farms creates geographic barriers that make it harder for a farmer to do business. If applying for a loan and working with a lender means traveling to the city, many farmers will go underserved unless lenders develop tools to reach farmers remotely. Farmers not only want but need the convenience of doing business from the cab of their pickup or the tractor's seat.
Furthermore, the modern consumer – farmers included - wants to do business online. If a lending institution, farmer-focused or not, is unwilling to adapt to a digital marketplace, they will not reach its target audience.
At Bankbarn, we aim to bridge that gap between farmers and the financing they need. We start with data-driven decisions. Our AI-powered credit risk models will quickly and accurately measure your risk and prescribe a customized rate, term sheet, and debt capacity, enabling a smarter, faster loan origination. That means farmers can get back to doing what they do best – farming. And, farming with the financing they need to grow their dreams.