How to Prepare Your Ag Borrowers for Refinancing in 2024

Refinancing wasn’t top of mind for agriculture stakeholders just a couple of years ago, especially in 2022, when net farm income reached an impressive $185.5 billion. Last year, however, the sector saw a 16% decrease in net farm income—and this year, the agriculture industry’s economic performance hinges on multiple unpredictable factors, with the farming sector expecting yet another net farm income decrease by 25.5%. 

“Decreasing commodity prices combined with inflated input costs, steady but higher interest rates, geopolitical and transportation uncertainties, and weather unpredictability will put the squeeze on margins for the nation’s farmers in 2024,” said U.S. Department of Agriculture (USDA) Chief Economist Seth Meyer. 

With farmers, producers, and other borrowers in the ag market navigating another challenging year with tighter margins that will squeeze their profitability, many will start to turn to refinancing to manage cash flow and better address financial pressures, particularly if (or when) interest rates come down—and lenders need to be prepared to guide them through the process with ease and confidence. 

Preparing for the refinancing cycle 

Farmers and producers considering refinancing will rely on their lenders to help them make an informed decision, as it’s a big change that will impact their business over the near and long term. 

Every borrower should ask level setting, loan term, liquidity, and lender-specific questions, such as: 

• Level setting: What’s my current financial situation (debt load, existing loans, loan terms, etc.)? What are my near- and long-term financial goals? How much will tighter margins impact my cash flow? What are the specific reasons I’m considering refinancing? 
• Loan terms: What are the current interest rates, how do they compare to my current rates, and are they expected to come down? Are there any penalties associated with refinancing? What does it cost to refinance?
• Liquidity: Will refinancing impact my liquidity? Will I be better positioned to manage my operating expenses? Are there any near- or long-term risks associated with refinancing? Will my financial health and sustainability improve? 
• Lender: Do you understand the market-specific challenges I’m experiencing? What are your other ag clients doing to weather tighter margins? Do I have alternative options to refinancing that could improve my financial situation?

Lenders should be prepared to answer these questions, and if their borrowers are unsure where to start or what to ask, they should proactively educate them on the process.

When to partner with Agri-Access

Our approach to lending and refinancing at Agri-Access is specifically designed to support ag borrowers as well as the community and local lenders who support them, particularly those who are navigating their own liquidity challenges. 

Lenders can safeguard liquidity by selling 100% of the loan to Agri-Access while maintaining the borrower relationship. We serve as a secondary market partner—one that understands the constant fluctuation of the ag market, provides guidance on the inevitable refinancing cycle, and offers flexible solutions that bring greater stability to lenders and their borrowers.  

Our experts are also uniquely positioned to help answer the questions ag borrowers will bring to their lenders, ensuring everyone makes well-informed, confident decisions whether they pursue refinancing or an alternative path.  

We’re here to help lenders support their borrowers. Contact a relationship manager today to learn more about partnering with Agri-Access.