Fquare, a New York-based investment platform announced it is offering a highly unusual way for farmers to acquire more farmland without increasing their debt. A news release from the company came to AgProfessional from Fquare, Inc., 1 Little West 12th Street, New York, N.Y., and AgProfessional is passing along the unusual financing scheme for land acquisition without endorsement of the company. Fquare is calling its “fractional farmland ownership” program a novel concept that helps farmers expand their operations profitably.
As the company noted, farmers are often faced with a paradox when attempting to increase profits. "Should I buy more farmland or lease additional farmland?" If farmers choose to purchase more farmland with a loan, their debt-to-income ratio/risk increases. If they choose to lease farmland, the rent rates on farmland continue to grow, eating away the farmer's profits.
Fquare officials claim most investors do not have the farmer's interest at heart, making leasing farmland increasingly a “break even" venture at most for farmers. “By extending our fractional farmland ownership program to farmers we have overcome these challenges without compromising the farmer's debt-to-income ratio/risk,” according to the news release.
“With Fquare, we set out to redefine farmland ownership with something you only find when you own a farm; profit from the crops grown on your land and profit from the increased value of your land without comprising your agribusiness,” the company further suggests.
In somewhat of a scare scenario and rehash of the 1970s and 80s, Fquare points out what happened in the 1980s when many farmers lost farmland by bankruptcy.
During the mid 1970s, economic factors were good. Interest rates were relatively low, therefore, farmers could borrow cheaply. In the 80’s the economy went bad. Outside economic factors forced interest rates up. Farmers had to pay more for the loans they needed to operate annually. Therefore, the decade of the 1980’s witnessed a dramatic shift in the capital structure of American agriculture and the ownership of its assets. A massive accumulation of farm debt in the 1970’s ran head-on into an unfavorable economic climate and incredibly high interest rates in the 1980’s. The result was that many previously successful farmers went out of business and the agriculture land market hit rock bottom.
“Fquare's fractional farmland ownership program will help farmers expand their Agribusiness incrementally, increasing profits without increasing the farmer's debt-to-income ratio/risk, since farms are acquired in all cash transactions on Fquare,” the company contends.
“Purchasing fractional ownership of farmland is incredibly simple on Fquare. The Fquare fractional farmland farmer ownership program, out of stealth mode, would work like this: The Fquare team selects and puts up a farm for sale to neighboring farmers. Farmers pledge to buy shares to become fractional owners of the farm. Each share represents the negotiated price per acre. The available shares of the offering represent the total available acres for sale. Each share authorizes the farmer to an acre of the farmland where he can grow his crops. At harvest, each farmer walks away with 100 percent of the crops grown on their land. The farmer's principle is returned when the majority of the other owner-farmers elect to sell the farm. The farmer can also sell his shares to existing owner-farmers,” the company explains in its news release.
“Each year, Fquare collects land taxes and any administrative fee to cover the management cost of the farm,” it is noted.
As for advantages to farmers, Fquare contends, “The program offers many benefits to farmers, some of the major benefits are, farmers walk away with 100 percent of their harvest; farmers do not pay rent for land use; farmers do not have to secure a loan to buy more land to farm; farmers benefit from increases in land values; farmers can continue to buy more land to farm without compromising their debt-to-income ratio/risk; and the plan benefits are limitless.”
What sounds even more strange is that the news release notes that “farmers do not have to financially qualify to join the program.” The company website is http://www.fquare.com/.
Just like investments outside of banks, it has to be noted that this type of investment is not bank guaranteed, not insured by any federal government agency, not FDIC insured and there is no guarantee that investments won’t lose value.