The Yin and Yang of Agricultural Financing Agriculture

There are a lot of factors that are taken into account before any financial institution will grant an agricultural loan. Some are obviously going to be based on the general health of the economy, but they are also interested in your credit rating, lending history and all that goes into that. It’s important to make sure that you keep a good rating and loan history. Lending institutions need customers as much as you need a loan. That is an important thing to remember!

PROPER RISK ASSESSMENT
Have a professional business proposal done BEFORE approaching a lending source. It is the easiest way to put your best foot forward. Make sure it details every possible benefit and positive that the loaned amounts will implement and provide. Have it minimize as many risks as possible. Many new to securing agriculture loans fail to recognize the big gamble that lending institutes take in regards to possible loss of crops and livestock due to natural disasters, such as tornadoes, drought, fire, flood, etc. You can minimize this by showing proof of adequate amounts of crop insurance. It will make them much more comfortable about lending to you.

ACCUMULATED WEALTH VS. PROFITS
Many of the mistakes made by farmers in the 1980′s had to do with the complete personal disregard of the separation that should exist between accumulated wealth and profits. Many borrowed based on everything they had of value. This means when the agricultural economy tanked, which it did, they lost everything. This a huge red flag. Never borrow and use things as collateral that you can’t afford to live without. This is simply a method of digging your own financial grave. Be sensible.

DANGERS OF STAYING IN THE RED
If you find yourself always having to readjust payments on things and never have periods in the black, financially, then you are most likely already over-extended. At this point, rather than taking out new loans, it might be more prudent to try and get existing loans refinanced and begin paying down debt. It might be worth getting some sound financial management advice to start on a road to less debt and more equity. You’ll never feel like you are making any progress if you are having to constantly borrow to cover previous financing. It can become a cycle that is hard to break free from.

BALANCE IS KEY
Balancing what you owe and what you own is critical for all businesses. Having debt is not necessarily a bad thing. When the debt heavily outweighs what backs it, then you have a serious issue. It won’t be fully understood unless the notes come due and you can’t pay them. At that point you risk having to file bankruptcy, or even deal with a foreclosure and loss of your agriculture business.