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Read This Before Applying for Your Next Farm Loan—Part 2

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calculatorBased on benchmarking that FamilyFarms Group conducted in 2018 and our long history of working with farm owners and their finances, we’ve compiled the following suggestions as you apply for your next loan:

  1. Begin your operating loan application process prior to fall harvest. Sooner is better to allow time to make changes in the event your lender requires additional information or you need to reduce the size of the loan request to an amount they will approve.
  2. Do not have all loans with just one lender; always work with multiple lenders.
  3. Apply for a new loan of any type with at least three lenders.
  4. Your loan application package should market your farm business to the lender by including
    • Appropriate sections of your business plan
    • Budget for the upcoming year
    • Current and past year budget to actual, pro-forma
    • Planned capital expenditures
    • Balance sheet and income statements
    • Crop plan
    • Sales plan
    • Rental/lease agreements schedule (but initially omit landowner names)
    • List of items that affected financial performance in current and past years
    • List of changes being made for upcoming year to improve financial performance (If you under-performed financially, you can’t expect the lender to approve a loan without seeing your plan to do some things differently.)
  5. Do not depend on your lender to provide your financials. You should always provide financials to the lender (Yes, some farms actually do this).
  6. Don’t ask the lender what to do; tell your lender what you need, why, and how you would like it to be put together. The lender’s job is to say yes or no, not to give advice. Regulations may preclude them from advising.
  7. Maintain a list of which assets collateralize which loans.
  8. Do not over-collateralize loans. Lenders tend to take more collateral than is needed if you allow it.
  9. Make sure balance sheet items are properly classified (short-term vs long-term).
  10. Make sure assets and liabilities have current valuations so the balance sheet is accurate for loan underwriting.
  11. Do not be late with loan payments—ever.
  12. Do not use operating loan money to purchase equipment, land, or any type of capital improvement. Short-term debt can legally be used only for short-term expenses.
  13. The worst thing you can do is fail to communicate with your lender. Especially if there is bad news, it’s better to tell them as soon as possible so there is time to take corrective action.
  14. You can often qualify for loans even if your working capital is weak—if you have a strong equity position. Equity is more important than working capital.
  15. Know your financial ratios. Calculate and compare with targets at least quarterly, although monthly is ideal.

FamilyFarms Group works to keep families on the farm by helping them build financially strong operations. By providing essential tools, training, and resources, we help farming families understand how to keep their businesses thriving for future generations. Check out our case studies to see how we’ve helped other families, or click the link below to request a free needs assessment.

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Written By

Dave Bryden

Dave Bryden

Manager of Business Development |

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