The Future of Ag Finance

Three hundred billion dollars ($300B) per year of additional agricultural investments is needed over the next decade to sustainably and profitably feed 10 billion people by 2050.

The traditional financial sector is moving further away from agriculture though, choosing perceived safer, more stable markets to invest their funds. This has left farmers, especially smaller, younger, and beginning farmers with vexing problems trying to fund their growth aspirations.

Agricultural banks also face significant challenges. 

With micro territories, limited debt capacity, loss of subject matter experts, and legacy lending systems, they are unable to compete in a rapidly consolidating environment. Farmers have lost over 50% of local community banks since the 1990s. Even larger agricultural credit institutions do not possess cutting edge technology, talent, or tools to truly engage their customers in the digital world, cutting into profits and growth potential for both lenders and borrowers.

Yet, we are living the agricultural data revolution. The amount, quality, and functionality of on-farm data, supply chain data, macro data, personal data, and financial data is getting exponentially better by the day. Fifty percent of all US farms are utilizing farm management software to run their business. The amount of data generated per farm is projected to exceed two million data points per day by 2030.

From milking robots and animal monitoring systems, to tractor sensors, computer vision systems and aerial drone surveillance, we have data points that can help generate a holistic picture of the farm - helping the farmer to understand how to improve their operation and helping their production partners to assess performance. In addition, data can help us better assess inbound business risk, monitor the health and productivity of existing assets, verify environmental performance & impact on business resilience, and proscribe adjustments where needed. 

…And it can unlock a new way to finance the future farm.

Ag Lending is Broken

Only 25% of US farmers are considered “prime”, while the 10-year US Ag Loan default rate hovers around 2%, leaving 73% of farmers un- and underbanked, without sufficient capital, efficient capital, or the best rates, terms, and services needed to grow their business.

Traditional Ag credit models analyze and determine credit worthiness based on a very narrow set of financial metrics. If you fall outside of that skinny corridor due to your age, experience, lack of credit history, business model, etc. you either don’t get a loan or you’re offered one which takes longer to underwrite, has stricter terms, higher rates, or you get a loan from the Farm Service Agency (FSA), which has an incredibly tedious 29 page application. This group of borrowers tends to be younger, newer, or smaller farmers.

In the US, for example, over 25% of all farmers (900,000) are young or beginning farmers and produce about one-fifth or $88B of the overall national agricultural output. Over 80% of US farmers are small to medium sized businesses (under $5M revenue/year). And it’s precisely these borrowers who need to be supported with the best rates, terms, and service to grow our future food, not constrained to fail.

Another major problem is the sludgy, manual origination, servicing, and monitoring (or lack thereof) of agricultural loans. When applying for loans, most farmers face mountains of paperwork and long approval times with uncertain outcomes.

Servicing and monitoring of loans is even more archaic. Using dairy as an example, every year, and for some farms, every month or quarter, a lender representative with boots on the ground must visit the farm to count cattle, tally feed, and inspect facilities, incurring a major cost for the lender and inconvenience for the borrowers.

To make matters worse, as the banking industry continues to consolidate, this means less choice in lenders, dismal customer service, and a dearth of subject matter expertise. 

Once considered a strategic partner for a farm, a business advisor to support growth and innovation, most banks are now relegated to a mere transactional capital provider.

Solutions - How do we fix it? How do we finance the future farm?

Start with data driven decisions.

Bankbarn’s AI powered credit risk models will quickly and accurately measure borrower risk and prescribe a customized rate, term sheet, and debt capacity, enabling a smarter, faster loan origination. 

Where a traditional lender may analyze 20 financial data points to determine risk, our models will look beyond financials to the “total farm”- financials, farm performance data, macro data, personal data - anything which our models determine helpful in understanding the farmer’s total business performance. This enables a borrower to get the best rate & terms, and empowers the lender to justify their risk, increase their number of borrowers, and expand capacity per borrower.

Next, our modernized, digital loan platform will provide a frictionless, intuitive experience for the borrower, with funds in minutes, not months. For the lender, the platform will automate and organize existing manual workflows while also providing prescriptive analytics to help them spend less time analyzing and monitoring loans and more time growing their book of business.

For example, the monitoring and servicing of agricultural loans can be burdensome and costly. We will automate the entire process by using various on-farm data streams to manage loan performance in real time, virtually eliminating the need for rudimentary, costly in-person farm audits. Our system will provide both a single loan performance rating as well as an on-going portfolio rating to ensure both the borrower and lender understand their asset health.

We are fanatical about helping borrowers and lenders fund their dreams. 

Through Bankbarn, farm funding will get a whole lot simpler, faster, and fairer.

Join our mission @bankbarn.io