As your operating loan maturity date approaches, you’ll want to give yourself plenty of time to prepare and gather all the proper documents you will need to support your loan request. Before you pick up the phone and schedule a meeting with your lender, keep the following guidelines in mind to create an overall package that “markets” your farm business to your bank.
Guidelines for securing your farm operating loan:
- Start working on your operating loan renewal 60 days prior to fall harvest or at least 90 days in advance of renewal. Doing so gives you time to gather documentation and develop a plan. Here are the items to include in your loan renewal package:
- Recap of prior year
- Annual Tax Returns and Accrual Profit/Loss Statement
- Year-end Balance Sheet
- Key financial ratios
- Recap of prior year
- Operations Budget for Crop/Livestock
- Capital Budget
- Family Living Budget
- Review prior year Budget to Actual
- If LOC is multi-year, consider a multi-year budget
- Crop Plan
- Sales Plan
- Schedule of Rental (Lease) Agreements
- Overview of operational performance and changes that will be implemented in the budget (one page or less).
- Schedule to meet with your Lender(s) and/or potential lenders. It is essential to develop a relationship with a “backup” lender in case there are changes with your primary lender. Think about a third “potential” lender to pursue. This will make you aware of what other lenders have to offer. Compare variables such as the loan terms, interest rates, and loan limits offered by these different lenders, so you can choose the most beneficial option for your farm. The financial industry is ever changing and having relationships in place can help if you experience challenges with your primary lender.
- Another potential source for financing is through your vendor. Make sure you get bids on your major inputs from several vendors. There are financing programs available through the vendor that can be very attractive.
- Once your budget is in place and vendor financing is researched, you can calculate the maximum operating loan needed. Remember not to use operating loan money to purchase capital items. Short-term debt should only be used for short-term expenses.
- Make sure you understand any requirements that you must maintain (e.g., a specific level of year-end working capital) in order to keep your operating loan in good standing. Failure to meet such promises can put you in default. Monitor your farm accounting reports throughout the year so that you know you are meeting the specified requirements.
If you need help understanding all of the financial considerations involved in making loan decisions or believe your farm operation could benefit from agricultural financial consulting, contact the experts at AgriSolutions.