Beyond Ag Credit: Exploring Unconventional Financial Arrangements for Agribusiness

For decades, the primary lender for agriculture producers seeking capital to expand their operations has been the Farm Credit System (FCS). While the FCS is a major player in agricultural lending, it is far from the only option available for buying land or financing an operation. A variety of alternative paths exist for securing rural capital.

Why Look Beyond Ag Credit

• Cutthroat Competition: Ag Credit can have tight credit qualifications and rigid structures with competition for traditional ag loans, a lengthly application process, and an institutional preference for large-scale operations.

• Limited Flexibility: Exploring alternative farm financing that bypasses rigid repayment schedules is essential because agriculture is deeply cyclical and unpredictable. The flexible options don’t hinder innovation and adaptability.

• Show Me The Money: Ag Credit relies heavily on collateral, such as farmland, machinery, and crop yields, which can be a barrier for younger farmers or those with less established operations.

What Is Private Credit?

Private credit for agribusinesses refers to customized, non-bank loans and debt financing provided directly to private farming, food production, and ag tech companies. Because these borrowers are not publicly traded on a stock exchange, they rely on private lenders rather than public bond markets to fund operations, expansion, or buyouts.

Key Characteristics of Private Credit Include:

• Diverse Range of Borrowers: Private credit addresses the heterogeneous nature of modern agriculture by funding a wide variety of operations that traditional banks might deem too niche or specialized. Private credit can be extended to small and medium-sized enterprises, middle-market companies, and even larger corporations.

• Not Traded on Public Exchanges: Unlike publicly traded bonds, private credit instruments are not listed on any exchange.

• Direct Lending: Lenders typically engage in direct negotiations with borrowers, offering customized loan terms.

Decoding Alternative Lenders: What to Consider

• Interest Rates and Fees: Carefully compare interest rates, fees, and repayment terms across different lenders and financing options.

• Eligibility Criteria: Understand the specific eligibility requirements and application processes for each option.

• Risk Tolerance: Assess your risk tolerance and choose financing options that align with your comfort level.

• Long-Term Goals: Consider how different financing options will impact your long-term financial goals and the sustainability of your business.

Harvest Returns has offered private credit investments to producers and other agriculture-related businesses since 2017, and they remain some of our most popular and successful vehicles. Agribusinesses come to Harvest Returns because of the flexible offering terms and streamlined capital raise process they provide compared to traditional ag lenders. Harvest Returns can help with land purchases, expanding your cattle herd, or even acquiring a new business.