Background Farmers Funding
'The higher the interest rate, the more attractive smart money is'
Although there is a lot hanging over their heads, agricultural entrepreneurs continue to invest. Entrepreneurship is, after all, entrepreneurship. This usually requires credit. Until recently, a visit to the semi-monopolist Rabobank was sufficient to tackle this problem. He is less and less at home these days. That is why it pays to take a broader look. Boerenbusiness will present a series of companies in the near future that offer more choice in financing. With this time: Farmers Funding & Advice.
Especially since the nitrogen issue has come up, the banks are looking extra critically at financing requests. Rabobank has indicated that for the time being it only wants to grant long-term loans to farms for necessary and urgent adjustments. This usually does not include the purchase of neighboring land. But just like in the private mortgage market, new parties are also emerging in agriculture. Sometimes it is other banks, often other types of capital providers, providers of alternative financing models, co-investors and also co-entrepreneurs.
One of the parties that organize other flows of money is Farmers Funding & Advice. Farmers Funding realizes loans for, for example, the purchase of another 10 hectares of land or for doubling the company. Perhaps more importantly, the company mainly sells a different way of thinking and working, says director Peter Pals. "Our vision is that companies can develop more easily and flexibly in the next 15 to 25 years with a 'lighter balance sheet' and 'smart money.'
More or less money in land
Pals takes a moment to clarify what he means. With a lighter balance sheet, he wants to indicate that most companies have actually invested a lot of money in the purchase of land. This puts an enormous burden on capital and also makes money immobile. "Farmers have invested a lot of money in land over the past fifty years, based on the idea that nothing can happen with land. Numerous statements support this: 'Even if it is too expensive, it always retains its value' or 'neighbour's land is only once for sale'. 'There is nothing like owning your land', is another one. In terms of yield development in agriculture, little could compete with the increase in the value of land. The problem is that you only benefit from that increase in value if you sell it again or if you take out additional financing. It has become clear in recent years that you are not always in the right place with land. The land must fall within the zoning of a Natura 2000 area and the value will fly away."
Companies need to grow, Pals is convinced of that. To still own all the land is gradually becoming an impossible financial task. It would be smarter then not to have all the land on the balance sheet, but instead also to have good lease agreements, he believes. There are various investors who want to participate in something like this. This frees up funds for other developments within the company.
Operator or administrator
And not only that. It can also help to sharpen the focus, according to Pals: "Are you the operator of an agricultural production company, or are you a property manager? Ultimately, you cannot serve two masters. be given to the company." By attracting smart money, Pals refers to attracting money from participants, as a distinction from banks. Banks mainly look at historical figures and whether companies have met certain conditions. "You could say to call such a thing in retrospect and therefore stupid. Investors and fellow entrepreneurs are actively involved in the long-term development of the company. That is why their input is called smart money."
It is up to the farmer to determine how far the participation goes. Farmers Funding does advise on this, because good cooperation requires a click and parties must fit together. Farmers Funding, in collaboration with ENInvests its own investment platform. Both entrepreneurs and investors in agriculture can go here.
Land-relatedness remains
A company that can use a larger part of the money for purposes other than extra real estate can develop faster and possibly also more profitably, Pals believes. Something like that must suit the farmer. He also expressly does not advocate a landless company or the like. A future-proof company must be land-based, but that does not necessarily have to be done through purchase or purchase alone. Farmers Funding is mainly active nationally in arable farming and dairy farming. Roughly 70% of the customers are in arable farming, 30% are in dairy farming.
According to Pals, the long period of cheap money has come to an end at the beginning of 2022. ''Every lender wants a return, that's as clear as a cube. With traditional borrowing from banks or other parties, payment must be made immediately and the rate for this has risen by about 2022% since the beginning of 2. For medium-financed companies, that's really about something. The smart money is also not free, but it may well be that the provider will participate for a much longer period of time, as it were co-enterprises, and only wants to see his compensation if the return allows it. The worse that interest rate hike continues, the more attractive smart money becomes."
Klaas van der Horst
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