Gathering documents while applying for an agricultural loan is often challenging. yet there is no way to tell a short-cut in providing loan documentation when you are trying to obtain funds.
The best way to meet the challenge is to be prepared. Know all the loan documents your lender is likely to request and have it available when you meet. Here are the types of loan documentation you need when you meet with your lender.
1) Loan Application
The loan application is the first thing you will have to complete to start the process. In the application, you will provide contact information, the loan amount needed, the purpose, and the proposed collateral. This will also give the lender permission to run a background and/or credit check.
2) Financial information
Be sure to bring your three most recent year-end balance sheets and your most recent year-to-date balance sheet to illustrate your financial commitments.
Make sure your growing crops are valued at what you invested in seed, fertilizer, chemical, prep work, and planting. Also, disclose accurate inventories at reasonable current market values. Accurately assess the value of your current equipment. Lastly, complete a thorough overview of your debts and correctly report current liabilities, any obligation due in the next year, as well as non-current liabilities.
Bring your three most recent year-end income statements, as well as your most recent to date. This helps from a historical perspective to show your ability to produce income.
Depending on your accounting system’s capabilities, it may be best to provide both cash income statements and cash/accrual income statements to provide a more accurate analysis of profitability.
Providing multiple years’ worth of these documents is not so much to help the lender find good or bad years, but rather to find trends from the income statements and balance sheets.
3) Tax Returns
The lender will need your last three years’ worth of tax returns so they can see your income and expenses over the previous years. This also provides a picture of your tax structure and how the business operates. This information, in combination with the other loan documentation (i.e. budget), will help you and the lender develop the best loan structure to minimize risk for both parties.
4) APH Yield Reports / Crop Insurance Documents
Actual production history (APH) provides information about you, your land, and your performance. It is a good idea to provide these to the lender so they do not have to use state averages, which often are vastly different from your own numbers.
Most lenders require applicants to carry acceptable levels of crop insurance if the loan application involves an operating loan that will be used to finance crop inputs.
A lender could require a budget or financial projections. When you prepare the budget, remember to include assumptions you are making to create the budget. If your sales are increasing, you should be ready to explain how you plan to achieve this. Explain any changes that have taken place in the operation historically and projected in the future. Your lender needs to understand what your plan is for repaying your farm debt.
These are the most common documents that most lenders will want to see when you submit your loan application, but others may be required; some lenders will provide a checklist of the documentation they need to see. Make sure you understand this list and don’t get discouraged—it takes time and effort.
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