Many Farmers when attempting to obtain a loan from regular lenders face quite an uphill mountain. Farmers are viewed with suspicion because of the nature of the lives that they live. Some of the obstacles that they face is that their income is cyclic or seasonal. Agriculture is notoriously unpredictable, this is due to circumstances largely beyond their control. Things like pests, market fluctuations, the weather and any of the other things that can and do go wrong.
Because of the nature of their work many are forced to live with high debt to income ratios. Most lenders see this as a deterant to any further debts, That also translates as lack of collateral, for smaller farms it is even worse. as lenders require some collateral to mitigate their risks. Because of seasonality of crops many lenders view this with concern as they worry about the ability of these farms to make payments through these lean times.
This appears as a formidable roadblock on the road to a bankers credit or loan. What is a farmer to do? The answer to that question can be answered by first considering that good times don't last forever. As a Farmer the first thing to do is to start off with some good record keeping. Also get knowledgable on all lending agencies, both near or far. There are financial institutions that specialize in working with the argricultrial community, get to know them and find out what programs they have.
The Gogernment has several programs geared toward farming and farm families, Here is an online publication that every farmer ought to know: https://content.govdelivery.com/accounts/USDARD/bulletins/355dc04#funding Many programs have expired but several new ones have just started that replace expired ones.
However even with the Government you will still be required to prove your case. This requires setting out to keep good records. Along the way seek to improve your credit score. Pay all your bills on time, keep your credit utilization as low as possible, and keep your eye on your credit report. Don’t just apply for credit cards because some bank says that you qualify, Be as frugal as possible.
Before you apply for a loan, consider every angle of what those funds will be used for. Sometimes borrowing too little can be just as bad as not getting the loan. Have a business plan prepared by a competent accountant where every item needed is accounted for. Show how it will be repaid over the time period specified, get your family members in on the plan so that it becomes ‘our’ plan rather than yours alone.
Develop a financial roadmap broken down in stages, months, years and if necessary in 5 year increments. This plan will serve several different things. It will provide you with the means of checking on yourself to see how much you are keeping on the path you set out on. It will also show your lender that more than a farmer you are a business person. Bankers love showing off their numbers. They love finding people that speak their language also.
Do not just appear before a stranger asking for a loan. Attempt to build some type of relationship with the lender you plan to approach for a loan, and most important study which is the correct loan to apply for. Get as much information as possible before applying. That includes information about the lender and their institution; what kind of loans they prefer and their lending in the neighborhood as well.
Like the SBA there are Government units that assist farmers. The USDA provides several types of loans to assist farmers. Understanding these programs and how they can be of assistance to you can go a long way to improving your chances of obtaining the kind of funding that you need. They can provide better terms with lower interest, while all the while improving your chances of getting a loan approval and improving your farming enterprise.
In conclusion, improving your chances for a farm loan approval revolves around demonstrating fiscal responsibility, planning, and a deep understanding of your business. By following these tips, farmers can enhance their profiles to lenders and potentially secure the necessary financing to sustain and grow their operations. Remember, each lender has different criteria, so it’s important to understand the specific requirements of the bank or financial institution you are dealing with and ensure you meet those standards.