What would it take you to walk away from your agrilender? Would the loss of your loan officer, a merger acquisition, poor service or a lower rate offered elsewhere send you looking for a new agrilender? This is a subject of great debate in agrilending circles. Let us see how lenders view the importance of interest rates concerning operating, machinery and equipment and real estate.
Operating Loans/ Short Term Loans
Approximately 80 agrilenders from the FINPACK agrilending conference responding to those questions provides valuable insight. Concerning operating loans, how much would it take in difference in interest rates between you and competitor to make your customer switch? Six percent stated under 1/2%. Forty-one percent felt that it was between 1/2 and 1%. Over half indicated between 1 and 2% while a small number stated over 2%.
Machinery, Livestock or Chattel Loans/ Intermediate Loans
Examining intermediate loans on machinery, livestock or chattel loans, the margin narrowed. Nearly, two-thirds stated the difference was under 1%. Slightly over one in four indicated it was 1-2%. Agrilenders cited that their customer’s loyalty decreased if offered lower rates and terms that are more flexible from a competitor agrilender.
Real Estate/ Long Term Loans
Let us go to real estate. Interest rate sensitivity was at its zenith. Forty-one percent felt a switch would occur under 1/2% difference. Fifty percent felt between 1/2 and 1% while 9% stated it would take 1-2%.
In today’s competitive environment, negotiations on interest rates are very important. However, a stable, knowledgeable, solutions-based agrilender in the long run can pay dividends to your business.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org.