Like other businesses, farms hit rough patches that can threaten their survival. And sometimes, young farmers need some help starting out.
Taking out an agricultural loan for farm-specific needs such as land or animal breeding often makes better financial sense than adding expensive credit card debt. It may be difficult to qualify, though, if you lack training and experience. It's even harder if you commit some common mistakes. Learn how to avoid errors in applying for an agricultural loan to increase your chances of success in securing the funding you need for your farm.
Common mistakes
- A weak business plan: Presenting a business plan listing sales revenue, operating and payroll expenses, as well as future capital requirements, will help build your case with lenders. A narrative that gives a history of your operation and specific goals with a monitoring schedule would also be useful.
- Lenders might also appreciate a thoughtful market analysis, a short list of your strengths and weaknesses, and the threats and opportunities you can identify.
- Bad recordkeeping: Records are vital to developing realistic plans for stability and growth, and will help a lender in its assessment of you and your plan. If you show up with hazy estimates of past expenses and revenue instead of detailed records, lenders may question your diligence.
- Insufficient capital or collateral: In addition to decent credit, lenders need to see that you're invested in your business. This could take the form of a cash down payment, collateral to help secure the loan or both. If cash or collateral isn't available, look for a friend or relative with an established credit history willing to serve as a co-signer. The point: It's a mistake to show up empty-handed.
- Letting your credit score slip: Lenders will check your history of repaying loans. That means your personal credit score should be as strong as it can be. If your score is too low, it might be a mistake to apply. Instead, work on building up your score first.
Seek Guidance
Chances are, you know other farmers or can contact agriculture professionals familiar with the loan application process. There may be local cooperative extension staffers, for example, who can walk you through what to expect and how to prepare. Take advantage of their knowledge and experience.
Once you have double-checked the numbers, do a gut check to see if it all makes sense. Because even if you don't, you know the lender will.
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