Commercial Banks, Farm Credit compete with Dealer Financing on Equipment
The manufacturers of farm equipment often play a dominant role in the financing of their own products. They can subsidize factors such as the interest rate on a loan at levels that simply can’t be matched by commercial banks or the Farm Credit System.
That’s not to say those institutions don’t compete. They do, but often in ways that play to their strengths.
In the case of the quasi-governmental Farm Credit System, their regional banks have been making loans for farm equipment since the 1930s. Bank capital was so scarce during the Great Depression the government stepped in to authorize a lender to fill the void.
The Farm Credit Bank (for long-term real estate loans) had been created in 1916 and the Farm Intermediate Credit Bank—which could make short-term and intermediate-term loans–became part of that system less than 20 years later.
In the 21st century FCS banks have maintained their goal of improving the well-being of farmers and rural residents with some new twists.
For Farm Credit of Mid-America, which serves Ohio, Kentucky, Tennessee and Indiana that meant offering their products in-house at equipment dealerships.
Through this program, called Agnition, the bank has short and intermediate loan products available at about 500 dealerships in the four-state region. Most of the business generated by Agnition has involved the purchase of used equipment—or new equipment from so-called short-line manufacturers whose brands aren’t the dealers’ mainstay.
Why would an equipment dealer, whose brand manufacturer offers financing packages already, let another institution make loans on-site?
Customer convenience is the short answer. Farm Credit of Mid-America may have rates and products for used equipment and short-line brands with which the dealer can’t compete.
“Many dealers can offer zero percent financing on purchases of their captive brand,” says Keith Lane, senior vice president for agribusiness with Farm Credit of Mid-America. “That’s not when we get used.”
On used equipment or new equipment not offered under the main brand “our rates are as good or better than the captive,” says Lane. They can also process a loan application, get an answer, and be sending a customer home from the dealership with their new piece of equipment within an hour.
Since they began Agnition in 2007 Farm Credit of Mid-America has increased its market share of farm equipment lending from 3% to 13%. Their goal is to eventually reach 25%.