What Is a Crop Lien System

Do you know what a crop lien system is? How is it connected with the modern-day credit card system? Well, just continue reading this article and you’ll know!

Crop Lien: What It Is

The so-called crop lien system was the credit system of the past. It gained more popularity thanks to cotton farmers in the Southern parts of the US from the 1860s to the 1930s. Specifically, it appeared in North Carolina in March 1867. This was the year when the General Assembly passed an Act aimed at securing advances for agricultural purposes.

People who used the system were owners, sharecroppers and tenant farmers. Those, who didn’t own the land they worked, borrowed supplies and food on credit from local merchants all year long. The merchants required the farmers to grow more cotton or some other cash crop since this was profitable. So, the merchants came to dictate the crops that those farmers grew.

This was a kind of lien on the cotton crop. The farmer received what was left over. The system saw its end in the 1940s because of several factors such as poor farmers’ move to cities and towns. These were places where they could find jobs more easily after World War II. The majority of former Confederate states passed laws like this.

Edmund Richardson was one of the people who bought up seized property along the Mississippi River during Reconstruction. This was until he became the owner of cotton plantations in 4 Mississippi Delta counties. Richardson’s land produced more than 100.000 bales of cotton on a yearly basis.

Crop Lien System: What You Have Today

Both for black and white farmers, the system served as a means to get credit before the planting season. They borrowed it against the value of the harvests they expected to have. However, it should also be noted that the planters often abused the system. The point is that they required high interest rates, and often kept those people’s lives under control.  

Today, such abuse has no place if you’re working with a reputable merchant funding provider. Nowadays, merchants very often turn to reputable alternative online lenders to get an easy access to the working capital they need. With a respectable lender, today’s merchants can be sure to avoid unexpected fees unlike those farmers using the crop lien system.   

By the way, if merchants were able to provide credit until crops were harvested, they would be able to charge higher for such purchases, with additional 20%-50%. Sometimes, it was even higher.

The system enabled opening a great number of stores throughout North Carolina and the South. However, farm tenancy fell after 1940, which reduced the number of crop liens, especially those concerning supply merchants. By the way, landlords and farm lending institutions continue using crops as debt security regularly, under stricter protective legislation.

As you see, the crop lien was an arrangement between the merchant and the farmer many years ago. It’s similar to the credit card system available in our modern days.

Author Bio: As the FAM account executive, Michael Hollis has funded millions by using business funding (crop lien system) solutions. His experience and extensive knowledge of the industry has made him a finance expert at First American Merchant.

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