By Randy Buhler.
Logan County Agronomy Agent.
When is a scam not a scam?
When an offer is legitimate, but not necessarily a good business decision is one answer. Such an offer is making the rounds.
If you receive CRP or PFC payments, you may be getting an offer in the mail to purchase your payments for an up front sum. This sum is likely to be 70% or less of the total amount of payments you would otherwise receive.
First of all, how did they get your name and address. A Freedom of Information suit was filed against the national Farm Service Agency office. The outcome of the suit was the release of names, addresses and payment amounts for participants in the CRP and PFC, nationally. This information did not come from the local FSA office. Because you receive a government payment, you are subject to the Freedom of Information Act process.
I have an example of one enterprise, Heartland Capital Funding Inc., that is using the list to send out personalized offers to local participants in the CRP. I understand that other companies are sending out similar offers.
These companies will purchase your guaranteed series of payments for a discounted lump sum. If you are in dire need of money, this program could be of interest to you. If you have an investment opportunity that likely will produce a greater return than the discount, you may have a good reason to use this funding method. It works similar to the Colorado lottery payout of a lump sum payment or an annuity spread over 25 years. The lottery lump sum is about 40% of the 25 yearly annuity payments sum. Everything is based on the mathematics of the time value of money.
Deciding whether this offer is good for you is entirely dependent on your needs and financial situation. If you are going to spend the money you receive to pay overdue bills, purchase some item you really don't have to have now, or buy lottery tickets, then you probably would be better off not selling your payments for a lump-sum. If you plan to make an investment in land, capital producing assets or a business opportunity with an assured possibility of profit, then accelerating your payments could make sense. It is important to look at what the offer will cost you versus what your return will likely be during the same period.
For example, say your total payments amount to $2,000 per year for the next seven years. During that period you would collect $14,000. The offer you get would likely be around $9,500. The difference of $4,500 is what you give up to get a lump sum payment. Does your investment opportunity have a likely return of 41% over the seven year period? Subtract the offer amount from the total of payments amount, then divide the result by the offer amount to find the return percentage figure.
Bare in mind, you are obligated to meet all of the contract terms with the Farm Service Agency for maintaining your land and the CRP cover, establishment of grass and maintenance of forage cover during the life of the contract. Will you have enough money to pay for weed control, mowing, replanting thin areas or other possible contract requirements? Where will that money come from?
These offers could be a scam, if you don't carefully evaluate your financial situation. It could pay to have an advisor check over your offer before you commit to even making an application. Your accountant or lawyer should be able to evaluate your situation and advise a course of action. These offers are like a loan, in that you are receiving money today against a promise of future payment. Be careful.