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4 Questions to Ask Your Lender Now

Sara Schafer


June 7, 2021



Many economic factors are at play in the ag industry, everything from stimulus money to higher commodity prices to historically low interest rates to strengthening farmland values.


How will these issues impact your farm? Farming the Countryside Host Andrew McCrea discussed these topics and more with Joe Caffee, president and CEO of the First State Bank of Middlebury, Ind.


Listen to the episode:

With your farm at a unique financial juncture, Caffee suggests visiting with your lender about potential opportunities or challenges. Consider these questions:


How has stimulus money and COVID-related payments changed ag lending?

“Banks and financial institutions are getting more and more competitive for the very best credits because we're all sitting on a pile of cash,” Caffee says. “There's no question that PPP loans really changed the way we look at our balance sheets.”


Many farmers applied and were given funds through the Paycheck Protection Program (PPP), Caffee says. That combined with higher commodity prices mean farmers are securing fewer loans through traditional lending.


As a result, competition is high among lending institutions.


“Rates are low and we see some of our competitors, especially some of the government-sponsored organizations or alternative financing companies and bigger banks, loosening their credit standards because they want loans.”


I’m considering a new lending product or institution, what red flags should I look for?

“No. 1 is does that institution have the cultural experience to work with farm operators, livestock and grain producers? I think it's important that from the teller to the bank president, because ag lending is just different,” Caffee says.


The second piece of advice Caffee has is around reading the fine print.


“What happens is some of these alternative finance companies don't have the breadth and depth of knowledge in the agricultural industry, and they will try to force ag loans onto commercial loan documentation,” he says. “Quite honestly, sometimes commercial loans for other industries are quite different than what they may need to be for a farmer.”


Good examples of this, Caffee says, are balloon features or some types of escalation features.


“So, reading that documentation very carefully and understanding what you're signing becomes very important when transitioning to a different lender,” he says.


What opportunities should I seize in this low-rate environment?

If you haven’t talked to your lender in the last three or four months, set up an appointment, Caffee says.


“With your lender you should take a look at where the market is and what it demands at this point in time,” he says. “There are very likely opportunities for some rate reductions or more favorable terms. We're seeing that some banks are willing to lock in some fixed rates for a little longer period of time, especially on a land loan with an excellent loan-to-value rating and good credit backing.”


What are you hearing about farmland values?

In Caffee’s area, farmland values have increased 10% to 12% in the last 12 months. Even with higher prices, he believes farmers will have chances to purchase farms at a reasonable rate.


“We're seeing maybe larger down payments than in the past as folks have a little more cash on the balance sheet,” he says. “As long as you've got a strong base of land ownership, I think there are opportunities out there. I just would encourage everyone to proceed with your eyes wide open.”


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