Most agricultural lenders agree that the agriculture industry is doing quite well, of course, with a few exceptions. Strong working capital levels, as a result of years of profitability and lush cash government payments, have reduced the need for operating monies in some cases. Land is often purchased using cash and land values continue to appreciate on the balance sheet. What are some of the risks being observed that have the potential to raise their ugly heads in the near future?
Ghost collateral?
As discussed in the last article, more lenders are discussing fraudulent activities within the business and outside that impact the financial status of the operation. “Ghost collateral” is becoming a more common risk. One lender commented that 90,000 head of cattle were listed on the balance sheet, but the inspection found only 10,000 head. The other cattle were somewhere else. Fraudulent activities in both the grain and livestock sectors have been mentioned. In the days of loan approvals based on quick credit scores with minimal information, expect to see more fraudulent activities as a few people try to take advantage of the system. This will eventually lead to more inspections and due…
