By Blair White
If there is anything good that has come out of rising input costs and inflation, it’s that these challenges have led to the necessity of developing innovative financial assistance programs for agriculturists. Today’s farm loan programs available through ag lenders can provide support and financial flexibility so farmers and ranchers can begin, grow, and sustain their operations.
Farm loans can be tricky to navigate, but there are a few critical pieces of knowledge that can serve as a roadmap through the weeds. Doug Hoelscher, Relationship Manager for AgTexas Farm Credit Services, shares invaluable expertise that can help give you the boost you need when you find yourself in an ag lender’s office.
“My favorite part of my job is working with farmers,” Hoelscher said. “I can relate to them having grown up on a farm, the trials, and any obstacles they may have. That’s what keeps me going every day. We are passionate about agriculture and want to help people who are passionate about agriculture, too.”
Lenders look at many aspects of your financial situation, such as your overall financial standing, collateral in equipment and land, previous three to five years of taxes, and average production history. Having these records ready to present to a loan officer can give you a leg up when making loan inquiries, but when it comes time to apply for a farm loan, there are a few more tasks to complete and items to think through so you are most prepared.
Think it Through
Before you contact an ag lender, be sure to think about the following points:
- Keep up with / be aware of your financial position. This includes having a good balance sheet with a verified account of your assets and liabilities.
- Be clear on where you currently stand with your operation. Are you just starting? Have you been farming for a few years? Are you looking to retire?
- Think about what your goals are. What exactly do you need/ are you asking for? Be specific. Are there any potential setbacks to bring awareness to that might interfere with those goals?
“They need to know where they are financially, and it helps to know their goals,” Hoelscher said. “That allows us to think about what we need to do to get them where they need to go and best utilize the tools we have to assist them.”
Get a Leg Up
In addition to the previously mentioned brainstorming, three items are also helpful to have in place:
- A clear business plan
- A good bookkeeping system/ strong records
- A diverse operation for multiple income streams
“Good records help us, and they help them too,” Hoelscher explained. “They can see where they are, and we can see the financial and production trends. If something stands out, we can address it before they get in too big of a bind.”
Types of Ag Loans
Next, consider what type of agricultural loan you need. The specifics of each can vary by financial institution, but some include:
- Farm Loans
- Livestock Loans
- Real Estate Loans
- Rural Home Loans
- Agribusiness Loans
- Equipment Loans
- Operating Loans
- Equipment Leasing
Tips for Starting a Farming Operation
It’s no secret that beginning an operation in today’s farming climate is an uphill battle. Acquiring all the capital needed to purchase equipment, land, and pay employees takes time.
“We want to take it easy, try to rent some farmland, maybe buy some equipment, and see how it goes,” Hoelscher advised. “Then, as you get more equity in your operation, we can leverage that to help you grow.”
Fortunately, ag lenders consider that farmers just beginning their careers may not have the equity their seasoned counterparts possess.
“If they don’t have the resources to inherit a farm or have someone help them out with equipment or cosign the loan, we use the Farm Service Agency,” Hoelscher said. “They do guaranteed loans, and AgTexas is a preferred lender for those.”
An ag lender may ask:
- How do you want to get started?
- How much do you want to farm/what is your plan?
- Where do you want to be/ what is your end goal?
For AgTexas specifically, their services include consultative lending. Their priority as lenders is to look out for the farmer or rancher’s future before loaning out money. While the lenders will not make any decisions for the client, they will provide as much information and insight as possible to help make informed decisions.
Tips for Established Farmers
Many of the previous pieces of insight also apply to established farmers. Farm Service Agency (FSA) loans are not just for beginners. They can also help preserve cash and liquidity for those well into their farming careers. FSA loans also serve as tools to assist the farmer or rancher. AgTexas offers guaranteed programs that offer financial flexibility. Once again, keeping good records is beneficial no matter what year of operation you are starting. Brainstorming answers to important questions is an excellent task to add to the start of each new crop year.
“Most farmers’ goal is to farm another year,” Hoelscher said. “Yes, that’s good, but I need a little more than that. Where do you see yourself? Where do you want to get to so you can retire comfortably?”
It can also be essential to check the business structure of your potential farm credit lender. For example, AgTexas, like PCCA, is a co-op. This means their borrowers are stockholders in the organization, which allows them to pay a portion of earnings back to their members each year (patronage). Patronage payments help subsidize growing input costs and higher interest rates in today’s market.
A History of Ag Lending
Four years into the Great Depression, President Franklin D. Roosevelt established the Farm Credit Act of 1933. This legislation established the Farm Credit Administration (FCA) and a system of banks to loan money to farmers, ranchers, and cooperatives to alleviate some of the financial burdens and allow them to continue operating. In 1941, those agencies would help feed citizens and
soldiers during World War II. By 1953, an updated act was passed, placing the Farm Credit Administration under the United States Department of Agriculture to streamline government operations and improve the overall efficiency of farm credit and federal agriculture policies. This strengthened FCA and ensured farmers and ranchers would have access to the credit they needed to survive and thrive.
Shortly after the great depression and WWII, the Farm Crisis of the 1980s devastated thousands of farmers across the country. The Agricultural Credit Act of 1987 created a new Farm Credit Administration board directing agricultural mergers and restructuring efforts. Additionally, the federal government was authorized to provide $4 billion in assistance to the farm credit system for restructuring debt, stabilizing finances, and avoiding insolvency in rural America. In 2005, the system repaid the last of the federal capital provided during the 1980s. In conclusion, The Agricultural Credit Act of 1987 laid the foundation for more stable and sustainable agricultural lending practices that are still in place today. Source: farmcredit.com/timeline
