What is Agriculture Loan?
Agricultural loans are generally with low interest that helps the farmers to run their farms more efficiently. Farmers can use the Agriculture loans to purchase farmland, to cover operating expenses, cultivations, to market their products, and associated activities. Agriculture loans are available for all types of farmers such as small, tenant, marginal, sharecroppers, etc. Agriculture loan software is an excellent solution for agriculture business lenders. Our agriculture loan software created for exclusive loan products like crop loans, loan offered to farmers to purchase cattle, irrigational equipment.
What are the advantages of Agriculture Loan?
Some of the ways agricultural loans can benefit a farmer are:
Purchasing farmland: Land is expensive. With the help of agricultural loans, farmers can purchase a farmland and build a profitable farm.
Meet operating expenses: Maintaining a farm is not a simple task. From hiring manpower to purchasing fertilizers and types of equipment, there are innumerable costs that a farmer has to bear. Agricultural loans help a farmer meet these expenses.
Marketing of the product: Once the products are produced, they have to be sold off in the market. This is the time of artificial production and fake substances. Keeping pace with them is not easy. Agricultural loans help in proper marketing and adopting innovative ways of selling products in the market.
What is the process involved?
There are many things one needs to know while understanding agricultural loans. We have covered the most important points below:
Types of financing:
While agricultural loan might sound like one single product, but they come in various forms. Some of the popular ones are a business loan, loan for equipment purchase, equipment lease, commercial mortgage loan, a cash advance against a credit card, etc. Generally, there are three forms of loans:
Short-term loans – which are used to meet the day to day operating expenses. Sometimes they are also termed as a line of credit. Short term loans need not always be like a term loan. At times, they are like overdrafts which keep rolling over the years.
Intermediate-term loans – These are mostly used for financing depreciable assets like machinery, equipment, livestock breeding and other improvements. The time period varies from 1 to 10 years.
Long-term loans – these loans, as the name suggests are long term. They are mostly used for developing land and building. These are mostly secured loans.
Interest rates: Interest rates vary depending on the term of the loan. Agricultural loans are available in both fixed and variable interest rates.
What are the challenges faced by Financial Institutions?
The agricultural loan is a tricky loan and comes with its own risks. Institutions which are involved in providing agricultural loan have to be double careful since the repayment does not only depend upon the borrower, it also depends upon the agricultural season of that year. Below are some of the challenges faced by the institutions:
Drastically Different Verification Process:
The verification process when it comes to agricultural loan products like crop loans and term loans are drastically different from other loan products. While processing the application, most financial institutions tend to draw a decision based on verification of the land’s possession proof and the project feasibility study conducted on the land.
The reports of the surveys conducted to ensure the eligibility of the tends to be several pages long. Storing the huge document as hard copies and retrieving them manually every time for a cross verification could become quite a time-consuming task which might lead to an impact on the productivity of the staff members resulting in the increased turn around time of a loan’s lifecycle.
Irregular Loan Payment Schedules:
When it comes to agriculture based loans, the scale of finance could never be set in stone. It tends to vary based on the crop grown, district or location and even the ownership of the land.
In some cases, despite being offered a certain amount the farmer might not be interested in availing the full amount immediately. If the farmer prefers to utilize just a portion of the loan first and decides to use the remaining after a few months, the interest would have to be calculated only for the amount availed.
Production and yield risk:
Agricultural production depends on a variety of factors starting from weather to soil condition, pests, diseases, etc. Unfortunately, most of these are unpredictable. Less rain in a particular year can lead to less production. Sometimes rapid spread of pests and insects can destroy the produce right before harvesting. However, any adverse effect on production can have an adverse effect on loan repayment and thus increase the chance of default.
Price and market risk:
Prices of agricultural produce vary from one year to another. They are not just a mathematics of demand and supply. There are so many other factors involved. Due to unfavorable prices, often farmers don’t get the right value for their product. Hence, they tend to default.
Why Cloudbankin for Agriculture Loan Software?
Cloudbankin is the perfect agriculture loan software product for agriculture lenders who have unique needs like seasonal repayment programs which collect payments only during the cultivation period and opt out of payments during the off-season period. Here is a list of reasons why Cloudbankin is the best agriculture loan software which would meet the needs of every financial institution:
- Cloudbankin would assist the financial institutions to speed up the loan decision process by getting rid of the redundancies like switching between third-party document management applications by providing a powerful cloud-based documentation system.
- Cloudbankin makes the transition from lenders who were prevalently offline to move into a digital environment pretty easy with its user-friendly interface that optimizes the information flow and increases the productivity of staff.
- Cloudbankin robust accounting module coupled with its easily customizable interface would allow lenders to create novel, short-term loan products with unique loan schedules.
- Cloudbankin auto-decisioning engine streamlines the workflow of a loan by injecting data transparency in the workflow and reducing the manual intervention in the loan’s life cycle.
- Cloudbankin intuitive dashboard offers the lenders a 360-degree view of the entire loan portfolio at a second’s glance and helps lenders make a note of non-performing loans, mitigate risk and offer in-depth insights to derive intelligent business decisions.
Click here to schedule a demo, and learn why Cloudbankin is the perfect Agriculture loan software for your organization.