Most farmers want to grow more than crops—they want to grow their operations as well. What stops them, in many cases, is the significant amount of money it takes to buy more land, construct new buildings, add new equipment and purchase technologies needed to increase their yield and profitability. Many, in fact, begin planning for these investments years in advance, patiently waiting for the "right moment" before they actually take the leap.
If this sounds like you, now might be the "moment" you've been preparing for. With a little research, farmers throughout the Midwest are finding financing opportunities that offer interest rates and terms rarely seen in recent decades. The good news is, some of these loan programs can be used to refinance existing real estate or equipment debt, or to obtain cash for short-term operating expenses. Here are some tips to get you started:
- Choose a lender that understands your business. Farming is different from other kinds of businesses. The risks are different. The capital requirements and revenue cycles are different as well. Not all lenders have the specialized knowledge needed to make agricultural loans—and to keep making them when commodity price fluctuations and other market conditions pose threats to your operations. In your search for a lender, seek one that is experienced in agricultural lending and interested in building a long-term relationship with you.
- Take advantage of your land's increased value. Land prices today are at or near record highs. This is great news for agricultural operations that want to improve cash flow by refinancing their debt. The higher the value of your land holdings, the more you can borrow against it at today's low interest rates. Just keep in mind that most lenders will expect you to have at least 30 to 50 percent equity in your real estate before they extend you credit. That amount is necessary to help protect against devaluation risks, should land prices drop. The upside: you'll walk out the door with a lower fixed payment you can apply toward your cash flow every year.
- Build a strong safety net. To obtain the financing you seek, you need more than a successful operation and strong financials; you must also be skilled at managing risk. That typically means investing in a cost-effective combination of insurances, contracting and hedging—all things that help create a safety net that adds predictability to your bottom line. Your lender will want to know the details of your risk management plan, as well as other initiatives, whether they require financing or not, so be in touch frequently. Invite him or her to walk the land you want to buy or rent. Lenders have a vested interest in your operation's success, so seek their advice when opportunity presents itself. Remember: no one likes surprises.
- Ask about special farm financing options. When you meet with lenders, ask about any special programs or partnership opportunities available for farm operations like yours. Good lenders don't just provide loans, they offer funding options designed to help you achieve your goals. Agricultural lending programs are currently available that offer lower rates and longer, more predictable payback terms. That translates into consistent payments, greater cash flow flexibility and immeasurable peace of mind to the farmers that take advantage of them. Don't miss the chance to be one of them. iBi
Steve Sebade is senior vice president and manager of the Agribusiness and Food Processing Division.
