By Aleta Barrett
There are many reasons a farm might want to apply for a loan. Capital improvements, cash flow, crop expansion and land acquisition are a few.
The exact loan application process and records required will depend on your lender and your individual situation. Factors affecting the process include the size of the loan, your farm history and personal credit, assets, and liabilities. You will need to research the interest rates, loan fees, payment terms, and loan specifications to find the loan that is the right fit for you.
Described below are some commonly expected requirements for all loans.
When you apply for a loan, you will need to be prepared. The first step is to contact the lender and set up an appointment. At this initial appointment, the loan officer will interview you about your farm and the purpose of the loan. This may be in person or over the phone. Either way, being professional and prepared will start out the process on the right foot.
It is smart to look at your credit report prior to applying for a loan. This allows you to research any negative marks beforehand. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.
Be prepared to answer these questions both during the initial interview and in written form on the loan application.
Purpose of Loan Why are you applying for a loan? How will it be used? How much money do you need?
Farm Business What type of operation do you have? What is the story/history of your farm? Is your farm a sole proprietorship, partnership, or corporation? What are your primary markets? What kind of record keeping system do you have? If you are a new farmer, what are your projections? What are your 5-10 year business goals?
Personal History How long have you been farming? What background and training do you have? What roles/titles do you (and your spouse) have on the farm? What other debts or loans do you have? What is your credit score?
Verification Materials Good record keeping is important when applying for a loan. Start organizing your data now so when you apply you will have all your ducks in a row.
• Three years of tax returns
• Three years financial records
• Three years production records
• Current financial statement and/or balance sheet
• Farm Operations Plan
• Projected cash flow budget reflecting production, income, expenses and loan repayment plan.
• Copies of written leases if you are leasing land or equipment
• Legal description of property owned or to be acquired and, if applicable, and leases, contracts, options and other agreements with regard to the property.
• Insurance coverage
• Registrations & Certifications
• Personal household information such as other income, expense for food, clothing, insurance, taxes, rent, medical costs, etc.
• Verification of non-farm income. Last few paystubs, pension plan or similar documentation
• Any debit or reoccurring payments such as child support, alimony payments, mortgage, credit card, and consumer loans.
If your financial records are not already organized, put them together before the meeting. Start by putting all your income and expenses into an understandable format. It does not need to be fancy. Bring all this information with you.
You can find out more detailed information about what documents are required directly from your lender.
Remember, the loan officer will be looking at you as a whole, not just at the farm. There are all kinds of loans for all kinds of farms. Keep records, be professional and have a business plan and you can be successful in financing your farm goals!