Even in the best markets, farming can be a challenge. With complicated regulations, slim margins, and fluctuating consumer demands, it’s important to make wise financing choices to ensure the ongoing success of your farm enterprise. Because agriculture itself is such a complex business—with huge operating costs and large swings in cash flow throughout the year—lenders catering to farmers and ranchers have to not only be knowledgeable about national farm market trends, but also local farming practices and specialties, climate conditions, and a host of financing programs and options. Working with an experienced lender can help you make the best decisions for your farm. In this post we’ll discuss the basics of agricultural lending and the benefits of working with a seasoned lender. We’ll also take some time to provide some general and specific tips for Missouri farmers and ranchers as they make plans for their next business move—whether it’s expanding an existing farm, starting a new one, or simply preparing for your next big purchase. Keep reading to learn more!
What is an Ag Lender and how does Ag Lending work?
Ag lending can be highly specialized. When you are looking for affordable financing solutions to help your business not only stay solvent but also set you up for continued prosperity, working with a lender who is both knowledgeable about the profession as well as the many financial products available to farmers is key. Let’s discuss the ag lending process a little more and explore some of the reasons why working with ag lenders can make all the difference.
What are Ag Loans?
Before we delve into ways in which ag lenders can assist farmers, it’s important to know what ag lending is. Agricultural lending
is a category of commercial loans that include financing for crop and livestock purchases as well as purchasing and refinancing other farm-related assets from farmland and improvements to machinery and breeding stock. Ag loans come in many varieties—some are designed to meet a specific need, while others are designed to be more flexible and cover a variety of expenditures. Common loan products include:
• Farm Equipment and Tractor Loans:
These loans generally last 1-5 years and can be used to finance the purchase of any equipment or machinery utilized to operate or maintain your farm, from combines to trucks (and even drones!).
• Farm Real Estate Financing and Land Loans:
With loan terms between 10 and 30 years, these loans can have variable or fixed interest rates. They can be used to purchase an existing farm, land, and/or rehabilitate and construct new farm buildings.
• Farm Operating Loans:
These loans function as lines of credit to be used for short-term lending needs to cover expenses associated with daily farm operations, like seed, inputs, and labor costs.
• Livestock Loans and Cattle Financing:
With both variable and fixed rate options available, this form of financing is often (but not always) offered in conjunction with other ag loans—like real estate or equipment loans—to help you build your farming enterprise. are available on livestock loans.
What is the role of an ag lender?
Agricultural lenders are banking representatives who specialize in providing loans to farmers, ranchers, and individuals living in rural areas. With so many different loan products designed to suit many needs, working with an ag lender can help ensure that you select the right loan for your farm goals. As Zackary Grossman, Ag Loan Officer and VP of our Carrollton Branch explains:
“An ag lender is someone who has in-depth knowledge of the trade itself. Farming, and all agricultural related trades for that matter, is a very intricate process, and includes many risk factors (weather, markets, etc.). The more knowledge and involvement the lender has with this process, the more easily they will be able to relate and understand just what it takes to make and keep their customers on the right track to success.”
Farmers often have a lot of complex questions when considering their lending options and working with an ag lender can help them understand all the available solutions. Ag lenders can also help address some frequently asked questions by farmers regarding commodity prices and predictions, farmland values, as well as financing-specific concerns from interest rates to down payment requirements.
How do Ag Lenders tailor plans for individual farmers?
A good ag lender will gain a thorough understanding of your farm’s financial picture to help you determine the right products to fit your needs year-to-year and month-to-month. Every farm is different, and every individual might be at a different stage in their life, whether they are young and just starting out with little to no equity, or a seasoned, veteran farmer.
In order to tailor an individualized financial plan, your ag lender will work with you each year to put together a detailed outline of your cash flow, utilizing average production history in order to keep these projections realistic. The more detailed it is—accounting for every penny earned and spent throughout the year—the better it will accurately predict your financing needs. Your lender will not only consider your farm’s financial outlook, but also your individual household requirements. For example, younger borrowers with larger families at home will have higher living expenses factored into their cash flow than borrowers with an empty nest.
Tips to Consider When Making Important Financial Decisions for Your Farm
The goal of an ag lender is to pair you with the right banking products to meet your farm's cash flow needs, as well as finance large purchases to not only begin and expand operations
, but keep your farm in good working order, running smoothly and efficiently. Our ag lenders work one-on-one with area farmers every day when they make big decisions that affect the success and future of their ag business. Here are just a few key considerations we recommend when creating a financial plan or goal plan for your farm.
Know the unique attributes of your farm. In the state of Missouri, it’s no secret that the weather can change on a dime—but there’s much more than the weather that can vary in our region. From one end of the state to the other, you can find vastly different topography and soil types, and each individual farmer has different wants and needs from their enterprise. Before you make any large-scale decisions that affect your farm business, take the time to know what works for you and your farm operation.
Learn from past generations and pay attention to what practices work for the layout of your farm. Remember, your farm—from its soil type and water content to wind exposure—might possibly be much different than even your next-door neighbor’s. Keep an open mind and while it’s important to always strive to do better, don’t get caught up in what the “other guys” are doing. Focus on YOUR farm and YOUR farm only.
Take steps to stay competitive in a tough economy.
At BTC, we take a lot of pride in the fact that we work hard to get the best rates possible for our customers to keep them in a good cash position. Do your homework before making drastic changes in your operations to make sure new investments or cost increases makes sense. Be conservative on capital purchases and maintain liquidity.
Find the right financing for your specific situation
Improve your financial position to get the best rate. The better your credit score, the better your interest rate will be. Having a high credit utilization rate (for instance, a maxed outline of credit), or a poor history of on-time payment, can bring your credit score down. Other things that can affect your credit are applying for too many accounts, or closing credit cards and lines of credit. Before applying for a major loan, take steps to improve your credit: pay down accounts with high balances, make a habit of making all payments on time, and avoid opening or closing accounts. Additionally, having significant cash reserves can help show you are in a good financial position to take on more debt.
Consider a Line of Credit for Operating Expenses
Unlike a home equity line of credit
which can have an extended draw and repayment cycle that can last decades, a commercial line of credit is something that is borrowed upon and paid back within a 12-month time frame. In this way, it’s best suited for operating expenses whose costs will be recouped by subsequent income later in the year. If you are looking for financing for equipment purchases, infrastructure improvements, or other large, occasional expenditures, a term loan will probably make more sense.
New to Farming? Apply for a USDA Loan for Beginner Farmers and Ranchers
If you are just starting out, you may not have the equity or capital to fund many of your important initial purchases for land and equipment, as well as other expenditures. The U.S. Department of Agriculture, who grants or guarantees many loans for farmers and ranchers, sets aside a portion of their funding specifically to assist beginning farmers
in their first 10 years of operation. They offer funds directly to farmers, as well as loans available through your bank, guaranteed by the USDA.
Loan amounts range from $50,000 for microloans to $2,037,000 for guaranteed farm ownership or operating loans. With low down payment options, flexible qualification requirements, and competitive interest rates these loans can help you secure affordable funding to help you achieve your dreams of farm ownership.
Take Advantage of the MO BUCKS / Missouri Linked Deposit Program for Agriculture
The Missouri Linked Deposit Program
, also known as MO BUCKS, is a collection of five individual programs designed to help ranchers and farmers in Missouri gain access to affordable financing. Through the program the Missouri State Treasury works with local lenders to grant low-interest loans “to create and retain Missouri jobs, encourage new economic development projects, and strengthen communities statewide.” Agricultural businesses can use these funds for a variety of projects and expenses, including purchasing and establishing new farms, everyday production costs, expanding into new ventures, and even renewable fuel production.
Individual components of MO BUCKS include:
This program provides low-cost funds for production expenses including equipment purchase or rental, harvesting costs, livestock production costs, repairs, wages, rent, feed, seed, and inputs, as well certain renovations and expansions (but not for purchasing land). These loans are renewable for up to five years.
This program is designed to help Missouri residents who seek to become full-time farmers, providing loans for buying “agricultural land, farm buildings, new and used farm equipment, livestock, and working capital.” In order to qualify, you do need to have sufficient working capital and experience, and your farm must be less than 50% of the average sized farm
in the county they are farming in (or have not owned farmland valued over $450,000 in the previous five years). These loans are renewable for up to five years.
Provides low-cost loans to be used for value-added agricultural business ventures, either for “the purchase of shares or [their] acquisition, construction, or operation.” This program is only available for for-profit enterprises which are based in Missouri, and borrowers need to have a MASBDA (Missouri Agriculture and Small Business Development Authority) certificate of qualification. These loans (of up to $250,000) are renewable for up to 10 years.
These loans are specific to the production of livestock or poultry. Like the Guaranteed Agribusiness Program above, you’ll need to be based in Missouri, have a MASBDA
loan guarantee, and be organized as a for-profit. These loans (of up to $250,000) are renewable for up to 10 years.
If you are a development facility or renewal fuel production facility borrower qualified by MASBDA, you may qualify for reduced loan rate through this program for your production expenses.
If you are interested in any of the above programs, you’ll work with your lender to determine if you qualify and apply. Eligibility requirements vary based on the program, so visit their website for specific information about how to qualify.
Work with an Ag Lending Professional at BTC Bank
An experienced ag lender can work with you to tailor a financing plan to both your farm and your family’s specific needs. Finding the right partner can make all the difference when it comes to making solid financial decisions that will impact your farm for years (or generations!) to come.
At BTC Bank, our lending decisions are made locally, and we strive to process loan requests as quickly as possible to deliver the best financing solution for you, when you need it. To learn more about what makes ag lending different at BTC Bank, call or stop by your local branch location