The agriculture sector contributes significantly to the Indian economy in terms of revenue and employment. It makes for around 16% of the Indian GDP and 41.49 percent of the workforce employment. But farming and related commercial activities are tough. It requires labour, supplies, land, and equipment. It also faces risks like vagaries of weather, shrinking farm sizes and pest infestation.
Limited finances to manage these factors and mitigate risks, make it even more challenging. Agri-financing provides credit for the smooth functioning of all activities and organisations in the farming sector. But it is important to identify the right agri-financing partner.
Here are some factors to consider before taking an agri-finance loan-
1. Understanding of the Agri Business:
A lending partner who understands the unique challenges of the agri sector can provide the right credit solution. A financier who recognises the risks of the business and suggests steps to manage the risks should be preferred over a lender who is interested in just lending and the repayment. Choose a partner who extends credit in terms of financing, consultation for referrals, partnerships, and fulfilling your business objectives.
2. Flexible repayment options:
Agriculture is dependent on seasons and weather conditions. Check if the finance company offers flexible repayment options. Some options beneficial for agri-businesses and farmers are-
- Repayment tenure in-line with the harvesting season or when products are ready for sale.
- Loans with an initial grace period.
- Flexibility in making full or partial prepayments with zero or minimal penalty.
A lender who is forward-looking and is flexible to provide finances for the evolving needs of an agribusiness will be a good fit in your overall business plan.
3. Innovative financing solutions:
Traditional loan solutions may not always suit farmers and agri-businesses. Agriculture is transforming, which means there are new processes and technology requirements. An agri-finance company that understands the agricultural value chain and the business interests of the stakeholders involved is the key. The focus should be on empowering the agri ecosystem with customised credit solutions.
Some firms provide financing against warehouse receipts. Others offer inbuilt weather-based insurance. Microfinancing against a variety of collateral and credit guarantee schemes are other solutions. Borrowers should study these lines of credit and select the one that is most suitable for their requirements.
4. Easy processing and documentation:
It is advantageous to partner with agri-finance players who understand the business cycle and provide better value in terms of ease of processing and speedy disbursals. The loan eligibility criteria and documentation should be easily manageable. Loan documentation should be transparent so that it elucidates the rights and responsibilities of both parties. It is also crucial to look for a customer support line for queries and service requests.
5. Interest rate:
Compare the interest rate on the loans offered by various financial institutions and choose the one with the most attractive interest rate provided the other terms and conditions of the loan are befitting. A lower interest rate means the cost of the loan is lower and, therefore, a lesser debt burden. But some loans with a lower interest rate may have steeper processing fees or a higher penalty for default. Look for attractive interest rates but do remember to check other expenses.
The agri-financing sector is seeing a paradigm shift with new players entering the market. They aim to simplify the financing journey with solutions based on traditional wisdom and tech-driven insights. It important to choose an agri-financing partner wisely.