Agriculture is a business like any other, meaning profit is the priority. Hence, it’s not enough that farmers know only how to farm. Besides that, you need to be a business person equally. This needs a certain level of intelligence that cannot be found between the rows. It means you properly manage your finances and understand the times you require external funding. This article thus provides you with five tips to help you if you need a farm loan.
Once you realize you require a farm loan, start organizing yourself early enough. Most lending institutions provide applicants with a checklist of the information needed to complete the application. When you have all your documents ready, the application process will be smooth for you and the loan officer. If you don’t get it right the first time, it adds a second or third round of follow-up, which can frustrate you.
Have a Business Plan
It’s very critical to first know what you can do on your own financially and what you need help with. Once you’re clear, start approaching institutions like Farm Service Agency since it aims at helping beginning farmers. Then devise a written plan that includes projects, deadlines for production, realistic goals, and objectives that are measurable, and a marketing plan. Being prepared with a business plan is key because some lenders will push for information to make sure you are well prepared.
Learn the ” Five Cs of Credit”
Most Lenders follow the five Cs of Credit when making loan decisions:
Character- your level of honesty and integrity
Capacity – how financially able are you to repay the loan?
Capital- your liquidity and solvency
Collateral- the physical property that will minimize the lender’s risk in case of default
Condition – the conditions for repaying and granting the loan
If you meet the above criterion, you will be eligible for a farm loan. Institutions like Farm Credit have stuck with these 5 Cs and have been successful for more than 95 years.
Know Your Lender
When lender shopping, remember to keep several attributes in mind. Ensure you find a lender that’s knowledgeable in the specific type of production you focus on, and if there are indicators to follow on. Lenders look for these types of ratios: operating expense ratio, sales ratio, and debt ratio. Their preferences for these ratios differ, so do enough research before you meet them.
Manage Your Money
When you finally have the loan, you need to manage your finances well. It may seem simple, but the first step is to pay bills when you have the money. Secondly, pay attention to operating costs such as fertilizer, seeds, or fuel since you have direct control over them. Make sure they don’t go overboard. Finally, you can focus on paying larger loans.
In conclusion, taking on a farm loan can significantly help you grow your farm business. In addition, if you use these five tips when seeking funding, you be at the front end of securing one. Always remember to plan and utilize the finances properly. If you are already thinking about applying for a loan, United Farm Mortgage is one of the leading agricultural lenders in the country. Visit their website unitedfarmmortgage.com.