Bridging the agriculture financing gap

Ag Resource Management is a Texas-based company that partners with banks and their ag clients to find solutions in situations where the bank might be unable to extend credit. Donna Swanson, a vice president and area manager based out of Story City, Iowa, spoke to BankBeat about how ARM helps ag bankers solve the problem..Tell me a little bit about ARM and its history..Donna Swanson: Ag Resource Management is 17 years old, and it was started in Louisiana by the owner of an elevator that sold inputs to farmers. He realized that there was a need for financing outside of what the banks were able to provide. At that point, there was a gap, so he developed ARM to cover that gap and help farmers keep farming. He quickly found that there was a huge need for the financial offering that he was proposing and that there was room for expansion across the country. .The company grew from Louisiana and Texas, moving up the corn belt. Now we've got 28 locations, mostly in the southern states and the Midwest, usually the corn and soybean states. We do finance a large variety of crops, but about 75 percent of what we finance is corn..We provide mostly operating loans, but we also do real estate loans and equipment purchase programs through forms of leases. We also offer crop insurance. We expanded into some different areas of agriculture that can help fill a niche need for bankers who aren't able to get into that because of regulations or who partner with ARM to mitigate risk. .What specific problem does ARM help farmers and bankers solve?.D.S.: Some farmers have a heavy ratio of leased land or leased equipment to the number of acres they wish to farm. When there isn't a ton of collateral outside of the crop, some will have a hard time getting an operating loan. We come in and find a solution for those with heavily leveraged balance sheets or for young guys getting started who don't have an established balance sheet. We also work with those who have experienced some tough times who need to restructure their balance sheets. .ARM's underwriting and our loans are secured by the crop. The crop insurance policy, any crop contracts or pricing associated with the crops is factored into the loan. We don't take real estate as collateral for operating loans. We can take some equipment as collateral but don't require subordination on that. We don't typically finance livestock operations, although we can help if we take into consideration how much of the collateral is being fed out to the livestock since we don't take livestock as collateral. We can help finance a dairy if there's an opportunity to take assignment of a portion of a milk check. .We come in during that process to provide operating loans to farmers without the bank being at risk and needing to extend further credit to them until they get the situation figured out. .What kind of scenarios does ARM typically deal with?.D.S.: The three major categories are: Current customers the bank wants back (which is probably 85 percent of what we deal with), exit strategies, and new potential clients who aren't a good fit..The first, ideal situation is that the bank wants to continue the relationship with the farmer but isn't comfortable with extending more credit. So we come in and provide an operating loan for the farmer while the bank helps with a restructure or whatever else is needed to fix that situation. The bank maintains the deposit accounts and all of the term debt in-house. What we like to see is a referral from the bank early in that process, so we've got a plan well before anything goes to mediation. The success rate of the bank keeping the relationship and the borrower healing up is amazing. Generally what we see is farmers coming to ARM for a couple of years, however long it takes to get their situation figured out. The relationship at the bank has been salvaged. We're a partner to the farmer, but we're also a partner to the bank. Our loan will include cash rents and inputs, but it can also include term debt payments to the bank. We work all that out in the budgeting process so that the bank is comfortable working with us and signing a subordination to give us the first lien on the crop. .The second scenario is the situation's gone south for quite some time, and the bank is not interested in continuing the relationship. We're looking at an exit strategy, especially if there's an operating loan from the prior year that is unpaid. We would take over the operating loan so the bank doesn't need to extend any further credit to get the crop collateral at the end of the year. If the bank wants the account back and wants to keep it in house, we take the bank's lead, but if they're looking for a new home for the real estate and everything, we can assist with that. .The third is when a new customer comes to you, and you know within 30 seconds of them laying that balance sheet down on your desk whether you'll be able to help them or not. Then we can come in and help that farmer find first an operating loan and then further down the road other loans like for capital purchases..When does ARM get involved in those processes?.D.S.: When we find out that there's a problem — the earlier, the better. Most of our business is from referrals where the bank wants to salvage a relationship or they need to quickly exit the relationship. They see us as a trusted partner they can work with. They connect me with the grower so we can assess the situation, and we keep the application process short. We need some information in the form of taxes, balance sheets, crop insurance information and FSA information. We help the producer gather those things to try to make the transition as easy as possible. .What we like to see happen throughout the process is communication from the lender so that we are on the same page about how this is going to work, what's in our budget, and that the bank is comfortable with the plan that we have moving forward. We definitely take a collaborative approach to make sure the grower can get a crop in and a crop out, but also that the bank can remain whole through the process or at least come out the other end in a better position than they were going into it.