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Meeting Ag Lending Goals Without Going It Alone
Agricultural lending has long been built on relationships. Financial institutions know their customers, understand their local markets and play an important role in supporting the farms and agricultural businesses that keep rural communities moving forward.
But even a strong borrower relationship does not mean every agricultural loan fits neatly within an institution’s portfolio.
Loan size, concentration limits, lending capacity and risk management considerations can all affect an institution’s ability to finance an opportunity on its own. For lenders looking to continue serving ag customers while managing their portfolio, loan participation can provide another option.
Create capacity without giving up the relationship
When a strong ag opportunity exceeds an institution’s lending capacity or creates portfolio concentration concerns, the answer does not necessarily have to be turning the borrower away.
Participation lending allows financial institutions to share portions of a loan with another lender. That can help an institution manage exposure while continuing to serve its customer.
For the originating lender, that distinction matters. The institution can preserve the customer relationship and remain involved in the financing rather than sending a borrower elsewhere because a particular request falls outside its lending limits or portfolio needs.
Participation can also create greater flexibility when evaluating future opportunities.
Look beyond individual loan size
Agricultural lending needs can vary significantly from one operation to another. Land purchases, facility investments, equipment, and other capital needs can quickly result in financing requests that challenge an institution’s lending limits or portfolio strategy.
Capacity is an important consideration, but it should not be the only one. Lenders should also consider how an opportunity affects overall portfolio concentration, the institution’s desired level of ag exposure and its ability to continue supporting a borrower as that operation’s needs change.
Participation lending can become part of that broader strategy rather than simply a solution for an unusually large loan.
By creating additional capacity within the portfolio, institutions may be better positioned to evaluate opportunities based on the borrower and the credit rather than capacity alone.
Protect what makes community banking valuable
For many agricultural borrowers, their lender brings more to the table than financing.
A local financial institution may understand the operation’s history, business strategy and community in ways that cannot easily be replicated. Those relationships become particularly valuable when producers are making major investments or navigating changing agricultural conditions.
A participation strategy can help preserve that value. Instead of replacing the originating lender, the right participation relationship should complement the institution’s existing expertise and customer relationships.
That means lenders should look for a participation partner that understands agricultural credit, offers solutions that fit their institution’s needs and allows them to maintain an appropriate role in the relationship.
Make participation part of the strategy
Participation lending is most useful when it is considered before capacity becomes a constraint.
Financial institutions can begin by evaluating where participation could fit within their overall ag lending strategy. Consider questions such as:
- Where are concentration or lending limits affecting our ability to serve qualified ag borrowers?
- Are there ag opportunities we would pursue if we had additional lending capacity?
- Which customer relationships could require greater financing flexibility in the future?
- What capabilities would we expect from a participation lending partner?
Having those conversations early can give lenders more options when the next opportunity arrives.
For institutions that want to remain active in ag lending, participation can provide another way to balance lending opportunities, portfolio needs and customer relationships.
Agri-Access works with financial institutions to provide agricultural loan participation solutions that help lenders manage risk, create capacity and meet their ag lending goals while maintaining their customer relationships.
Explore Agri-Access participation lending solutions.
