My Side of the Fence

Financial Institutes

  • Peter de Jong, Author
  • Dairy Farmer, Southeastern Manitoba

Financial institutes are necessary partners in farming for farms to be successful. Like farming, financial institutes are also changing rapidly. They communicate with their clients on information about input costs and cash flow predictions. Historically, we’d meet with the lender if we would like to buy a piece of land or equipment, and the local lender informed us in a couple of days if it was approved.

Today, however, lenders are all multinational, a large layer of bureaucrats from local offices and regional offices to their corporate head office. It takes up to six months to get a loan approved. It’s a big reason why most farmers are leasing these days. It only takes a day or so for a lease approval. Such delay in loan approval, by the lender, is an extra cost for the farmer. Cost for leasing generally is 3 to 4 percent more in interest. Sadly, leasing companies generate money from the same lender institutes where farmers were establishing their loans. The lease industry is a billion-dollar business. According to 2017 data, in Western Canada farmers leased about $3.6B. Interest at 3 percent, is approximately $360M in extra cost to farmers. It is this $360M that financial institutes generate by delaying the loan approvals; making more margin, never mind the hidden fees, lease fees, administration fees and registration fees to max out this lease product.

The direction enforced by financial institutions is to change account managers regularly. This means the farmer must provide new data from year-end, quarterly reports, and consolidated reports to the new managers. This drives up the cost of accounting. Many, if not most of these new managers have little or no farming background; making decisions from a spreadsheet. Since 2017, it is a growing frustration among the ag industry each year to see a decline in revenue due to higher borrowing costs. Most managers are fresh out of university, having never visited a farm. It takes a lot of patience from the customer, the farmer, to explain the rationale as to why the farm needs this piece of machinery or the need to expand the land base.

Most frustrated is the young farmer, wanting to expand the farm operation, gives up after a couple of years. The yearly review of the banker’s loan is very stressful for the family of, and, the farmer. Even in the good years, having never missed a payment in over 25 years, every winter the farmer become anxious whether they will get loan approval. It is outrageous, that in after having serviced a mortgage for 10 years, an annual review is required every spring. The uncertainly that one may lose the farm, all because of a new, often inexperienced, bank account manager is stressful. On a spreadsheet, it may appear that ROI on assets look weak. Financial institutions need to realize that this stress on the farmer is not in the best interest of their business. In the past, presenting a copy of the annual tax return to the lender was suffice, if no payments on the loan were missed and the loan is in good standing until the end of the said mortgage. With modern communication, account managers insist on immediate answers, sending emails and texts on some of the busiest farm days only adding to the stress and a bigger risk of accidents with farm machinery, perhaps even health issues.

My advice to fellow farmers is to create an agreement with the lender insisting on being more proactive towards all new loan conditions. The young farmers should be encouraged by account managers to sponsor more 4-H clubs to stay in touch with the future farmers. Lenders should build better relationships with their ag customers and a better understanding of the farm family life. Furthermore, the financial institutions should heed the advice in that before a farm account manager is hired, the candidate should do some voluntary work on some commodity and livestock farms. The account manager, before making any decisions on the livelihood of the farmer and family, should gain understanding of how things are done on a farm. With times a changing, there are more and more female farmers entering the farming sector, giving the farming business a brighter prospective.