The equine sector is an important aspect of the Bluegrass region’s agriculture industry. As in broader agricultural operations, lending and access to capital play a vital role in facilitating continued investment, growth, and profitability. Thoroughbred farms across Central Kentucky borrow to purchase horses and land or to finance ongoing operations.
Wilson
While industry experts say many banks closed their equine lending programs in recent years — especially during the pandemic — the sector remains a key driver of Central Kentucky’s economy. Several local and regional banks and credit unions continue to offer loans in this specialized and nuanced niche.
“Agricultural lending is all we do — our sole focus is lending capital to farmers, and in Lexington, that tends to be a lot of equine operations,” said Willie Wilson, Vice President of Credit with Central Kentucky Ag Credit.
“For us, equine lending has grown since COVID-19, because we saw some of our competition step away,” he said, noting that equine lending currently comprises about 15 percent of the credit union’s portfolio. “That isn’t really an option for us, and it’s by design that we don’t walk away from agriculture in good times or bad. COVID was hard on a lot of horse farmers, especially with the closure of racetracks and sale barns, but we stood with our equine customers.”
Many commercial breeders utilize lines of credit to cover operational expenses — including stud fees, board, veterinary care, labor, and training — until seasonal yearling sales generate revenue.
Ted Berge, Director of Equine Services at Independence Bank, notes that equine revenues and expenses largely follow the cyclical nature of agriculture in general.
Berge
“The business of being a commercial breeder is very seasonal in terms of when money comes in and goes out,” he said. “The sales are all in the fall, so that’s when they make their money. Then the rest of the year they’re pretty much spending money. We provide lines of credit to deal with that seasonality.”
Those lines of credit cover general expenses — including stud fees, board, veterinary care, labor, and training — until yearling sales in August, September, and October bring in revenue. Other term loans finance the acquisition of livestock.
“Sometimes we handle acquisitions where someone is buying a big piece of a new stallion prospect, for example, which is very expensive, and then we try to do term loans that match roughly with the anticipated revenues from those sources,” Berge said. “For example, with a stallion purchase you would hope to collect all of the purchase price of that horse over the first four or five years, and we would have a term facility that would amortize like that.”
Independence Bank also offers farm mortgages for longer-term loans, he said.
Like any business, the equine industry and its associated lending needs carry risk. Banks can lessen risk by securing sufficient collateral to support the loan, but valuation of that collateral can fluctuate.
“When you look at general livestock lending like cattle, which are a commodity, I can look up market reports from recent sales and know where the cattle market stands,” Wilson said. “Equine valuations are completely different, and they get full appraisals on their bloodstock many times.”
Large operations will typically have their bloodstock appraised annually, he added. If a stallion’s offspring have a strong year at the sales or on the track, that stallion’s value will typically rise. “Their pedigree is what drives their value,” Wilson said.
While predicting the future is difficult, there is no reason to believe the Thoroughbred market will change significantly in the near future.
Lashbrook
“We’ve seen nothing but positive growth,” said Chad Lashbrook, Vice President and Senior Commercial Lender with Independence Bank. “Purses are up in a number of jurisdictions, which has really helped the auction market for racing prospects. The market for top broodmares has been very good.”
Lashbrook added that fresh blood — new horses, new owners, and new investors — continues to attract media attention and spur growth.
Wilson, of Central Kentucky Ag Credit, said that new investment trends and developments in other states’ racing industries also spur growth in Kentucky.
“There’s probably more foreign investment today than there was a decade ago,” he said. “I think the trajectory of the equine market will continue to grow over the next five to ten years. I think it’s because of the changing landscape of horse racing in states outside of Kentucky, principally Florida and California — which is a good thing for Kentucky.”