Changes are occurring in farm financing. At the Crossroads Crop Conference underway in Calgary, a lender highlighted some of the financing trends.
ATB Financial is a provincial body that lends primarily in Alberta, but Jonathan Neutons, ATB’s head of agriculture, addressed farm finance changes occurring across the prairies. One of the big changes has been the increase in equity partners. Investor companies buy land and either lease it to producers or form an equity partnership with a producer. In many cases, this may be a bigger parcel than an individual farmer could otherwise finance. Neutons also suggests that with the high price of land, longer term mortgages may be the way of the future.
“We do a 35-year amortization on land financing and we’ve done that for a few years now,” noted Neutons. “A lot of other lenders do up to 25 right now; I don’t know anyone that’s doing beyond 35. Depending on where things go from a land value perspective and so on that it might be something that needs to be considered by financiers going forward – I’m not saying ATB is doing that but I’m saying that someone could come along and consider that.”
Neutons notes that rented land is becoming a higher proportion than owned land. Some of this is due to investment companies buying land, but more individuals are also holding onto land after retirement and renting it out rather than selling.
A trend not unique to agriculture is the growing incidence of financial fraud. Electronic fraud gets a lot of attention where fraudsters use various methods to gain access to bank accounts and that’s why two factor authentication has been implemented. However, Neutons says using cheques to pay bills comes with even greater risks.
“We still see in the agricultural sector there is still quite a high use of cheques, whereas a lot of other sectors have moved away from cheques and consumers too have moved away from using cheques as much.Cheque fraud is not easy to stop and its the easiest one to do – you can modify, counterfeit it – there’s different things that occur on fraud for cheques and its the easiest to accomplish.” said Neutons.
While income statements are always important when seeking a loan, income can be variable from one year to the next. Increasingly, lenders are also considering balance sheets that often show equity growth due to rising land values.