Is working with a secondary lender a good idea? Financially speaking, participation lending offers numerous advantages to your financial organization as well as your agricultural borrowers. When farmers are ready to expand their operation, they often require extended terms that accommodate their working capital needs. The power of collaboration enhances your ability to provide these favorable terms and raise your value to ag borrowers.
The bigger question, however, is how these loan partnerships impact the loan process. If your lending partner becomes the source of delays and other challenges to your financial institution, then you may find they’re causing more trouble than they’re worth. As you assess your options, be aware of the value-added services and expertise in the field your potential partners bring to the table.
Ease of administration
Bankers considering secondary lending options often worry about the increased administrative burden. These concerns are valid since you’re introducing a second entity into the lending process. Assess the impact and be vigilant on how this partnership can introduce new management tasks or increased overhead. To ensure deadlines, documents, and underwriting and approval requirements remain on track between both parties, establishing exceptional communication and coordination from the outset is crucial.
The good news is that even if you remain the primary lender, you don’t necessarily need to create a management system from scratch. A seasoned secondary lending partner should have solutions readily available to ensure a smooth partnership. Don’t hesitate to inquire about the resources they can provide, such as secure portals.
Proven track record
The experiences you have with a potential lending partner will ultimately impact the borrower. If your focus is on expanding your portfolio with successful agricultural clients, seek lending partners whose approach aligns with yours. Dive deep into their history with participation lending and scrutinize the outcomes of these partnerships by asking probing questions. Who is their ideal lending partner? What do they invest in and why? Are past lending partners open to new loan opportunities with them? How do their loans perform? What are some of the business outcomes for borrowers resulting from these shared investments?
Expertise in the ag market
Participation loans can originate from a variety of sources. While banks and credit unions are the most common, other entities can also provide capital. Potential sources are private equity fund investors and farmland REITs (real estate investment trust). Take time to understand why a secondary lending partner is interested in investing in agriculture, along with their expertise in this realm. Otherwise, they may lack the risk tolerance and knowledge needed to handle the cyclical nature of ag markets, potentially becoming more of a liability than an asset.
Consider the additional products and resources they can offer to enhance your value to agricultural borrowers. Examples include appraisal services, a variety of lending products and solutions, support and analysis for new commodities and legal services for complex transactions. These are just a few ways a secondary lending service can take your agricultural lending services to the next level.
Expand your lending power
With the right partner by your side, you can take your agricultural lending services to the next level and continue to support the growth and prosperity of farmers and agribusinesses in your community. At Agri-Access, our innovations in participation lending — including the Lender Portal and Scorecard loans — are designed to save you time and elevate your value to your borrowers. That’s been our focus for more than two decades.
Learn more by downloading our eBook, The Ag Lender’s Guide to Growing Your Loan Portfolio.