Lande outlines impact of farming seasonality on investor returns
European agricultural finance platform Lande has reassured investors of its profitability despite the fact that the seasonality of farming translates into seasonal returns.
The Latvia-headquartered peer-to-peer lending platform, which focuses exclusively on the agricultural sector, said that it has adapted its loan conditions and investor policies to better suit business cycles.
The company said it is aiming to “respond to one of the biggest issues farmers face when they need to access credit: the misalignment between their specific needs and the way loans are usually structured by banks and other financial institutions that don’t have dedicated products and teams for agriculture businesses.”
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It noted the cyclical nature of farming and the risk of uncontrollable factors such as weather conditions, as well as the delay between planting and harvesting.
“So despite the overall operational stability, farms tend to experience irregular cash flows throughout the year,” Lande said. “This has an impact on several business indicators, including the way farmers structure their loans and repayment schedules.
“Financial management in farming is further complicated by the fact that crop cycles often split across fiscal periods and that a lot of debt may be accumulated at certain points in the year, even if the business is actually doing quite well when the big picture is in view.”
For investors, Lande says that a “key aspect to keep in mind is the fact that seasonal repayments will translate into seasonal returns.”
This means the biggest returns from farmer loan payments will come during the most profitable months for the farms which each investor supports across the lending period, which can go up to three years, averaging at 17 months on the Lande platform.
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For example, some farmers will pay back their loans twice a year rather than monthly, after they sell their products.
“For an investor who has a mid- to long-term outlook, the payment schedule may be a relatively minor concern, with the benefits of such an investment being much more significant,” Lande said.
“First of all, with interest rates of 10.8 per cent on average, investors can be confident that Lande be a profitable platform for them, especially because our project evaluation team is highly experienced on this market and we make sure that the farms we lend to are stable and trustworthy, meaning they have a high likelihood of repaying their loans on time.”
Lande said that investors could also be reassured by its borrower default rate of only one per cent. its loan-to-value threshold of 60 per cent, the wide variety of projects on its platform and its fixed interest rate, “which translates into high predictability”.
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“Lande investors are valued partners for us and their involvement in supporting farms across our markets is highly appreciated, as farmers are struggling more and more to keep up with the demands of today’s fast-paced economy,” said the firm. “That said, we want to make sure that investors have a good understanding of the realities of the farming business, because their experiences on the platform will be based on the farm financial cycle, which will vary based on the type of farm being financed through each project, the purpose of the loan, the time of year and length of the contract, as well as by any unpredictable conditions the farm might deal with during that period.”