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Vendor Financing: A Win-Win for Farmers and Ag Retailers

Man calculating financing

Over the past several years, farmers have weathered a pandemic, dynamic markets, unreliable supply chains, unpredictable weather, historically high input prices and rising inflation. Successful operations kept a close eye on their finances to overcome these challenges and took advantage of the best financing offers to stretch their investment dollars further. 

Non-traditional financiers, including ag retail vendors, are gaining popularity among farmers. As a trusted advisor in the industry, you can differentiate your business and support your customers’ goals by offering a competitive financing program. Let’s look at how vendor financing can benefit you and your farmers’ businesses.


Current State of Ag Finances

Despite recent challenges, many farmers have seen positive balance sheets over the past year. The USDA’s Economic Research Service forecasts the 2022 net cash farm income to increase by 13.8% compared to 2021. When adjusted for inflation, 2022 net farm income is expected to be at its highest level since 1973. Higher commodity prices and robust sales drove a strong financial recovery in 2021 and 2022. 

An Ag Lender Survey conducted by the American Bankers Association Lenders reported increased demand last year for alternative ag financing, including precision technology, cover-cropping practices and reduced-till farming. These are business areas where ag retail has substantial expertise to support customer needs through vendor financing. Here are several other notable highlights from the lender survey:  

  • Lenders expect financial conditions to deteriorate next year, with 52.6% projecting a decline in farm profitability in the next 12 months.
  • Inflationary pressure is lenders’ number one concern for farmers.
  • Demand for agricultural production loans grew in 2022, reversing the downward trend reported last year.

Your Role in Farmer Financing

Vendor credit programs have gained market share over the past decade because they are often more cost-effective, flexible and convenient for farmers. While most farmers still rely on traditional banks and credit unions for the majority of their credit, vendors have become an attractive alternative for financing necessary inputs. 

Some vendor programs can approve farmers for credit in as little as 15 minutes, so your ag retail business becomes a one-stop shop for securing seasonal inputs. If you aren’t offering your farmers a financing option, you could miss out on opportunities to build stronger customer relationships and increase sales.

Consider the programs, processes and people already helping your customers with ag input purchases and services, and improve them. You are in a unique position to support the financial aspects of a farm’s operation because you already have a deep understanding of how it works, the challenges it faces, and the opportunities it could capitalize on. Ag retailers also understand the cyclical market cycles and can use their expertise to help farmers optimize their investment dollars. You probably already work with suppliers that offer some sort of financing offer. Help your farmers evaluate those offerings to choose the most attractive program to meet their needs.


Financing Increases Customer Loyalty (and Sales)

Financing programs are powerful marketing tools. They can incentivize farmers to try a new product or change their purchasing habits. The right vendor financing program may help the credit-constrained farmer make purchases that traditional lenders may not approve. That opens the door to more business growth for your company and deeper, more meaningful customer engagement. 

A competitive financing program allows you more visibility into a grower’s financial situation to guide strategic conversations. Your agronomic recommendations become stronger when you have a comprehensive view of what’s at stake. Armed with that information, you can build long-term plans with operational goals in mind.   A University of Wisconsin survey asked dairy farmers about their engagement with non-traditional farm financing programs. Most dairy farmers thought non-traditional lenders provide different services than traditional lenders, and many believed non-traditional lenders are more flexible. According to surveyed farmers, competitive interest rates were the primary motivation for borrowing money from non-traditional lenders. For example, if a grower can lower their interest rate by 3% with vendor financing, they could save $6,000 on a $200,000 seed purchase. Vendor financing can provide further financial benefits for farmers when combined with bundled discounts.

GROWERS Rally, GROWERS’ sales enhancement platform, is designed to help retailers give farmers an efficient and professional buying experience. The platform has a built-in financing option available for retailers to extend to their farmer customers.


The Right Programs Can Differentiate Your Business

Today, farmers have more options for securing loans. More financing competition gives farmers extra flexibility to capitalize on opportunities and address market volatility, but it can also add complexity to the decision-making process. Follow these tips to create a competitive financing program that’s easy for your customers to navigate. 

  1. Know what your competitors are doing, and outdo them.
  2. Make the approval process simple. Less paperwork, simple language, fast decisions.
  3. Offer flexible terms. 
  4. Keep rates competitive.
  5. Offer volume discounts. 
  6. Provide autopayments and payment reminders. (Remember, many farmers will deal with multiple financial institutions and managerial tasks. Help them stay organized.)
  7. Support farmers in comparing financing options.

Many programs can get you started if you’re new to vendor financing. GROWERS has partnered with a trusted financial institution to make input financing simple for you and your customers through integration with the GROWERS App. For more information, visit our website.

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