Agripedia

How to Get Your First Agricultural Loan?

In today’s world, it is unusual for a lender to provide a first loan to a person looking to buy a farm. More likely, a first loan might be used for livestock or equipment, but probably not for a brand new herd/flock or your first piece of farm equipment as these may be too risky. 

Getting Approved for a Loan 

Approval for a loan will depend upon how well you present yourself, your business and your financial needs. The first step is to ask yourself exactly how much money do you need? Why do you need it? How will you pay it back? Your chances of receiving a loan will depend on how prepared you are to answer these questions. Lenders will look at your credit worthiness, your experience and training, and business management skills. When reviewing your loan application, a lender will likely use the “Five C’s of Credit” to assess your business. 

The five C’s of credit 

The lender will mainly look at the following five C’s while looking at your loan application: 

Character or general impression you make on the lender. This subjective judgement on the part of the lender as to whether you and your business idea will succeed. They will look at your qualifications, experience and management skills, as well as your personal credit. The better you are prepared before you meet with a lender, the better your chances of making a good impression on the lender with regard to character. 

Collateral are the assets you own that the lender uses as a backup to recover funds if you happen to default on the loan. Think about the assets that you will put up as collateral. Is the liquidation of these assets is sufficient to pay back by lender in case of default. 

Capital or the money one has already invested in ones business. Do you have sufficient capital to support the farm in case on any debt or do you have enough capital to operate the farm during tough times. 

Capacity or the strength to repay the loan. The lender will look back to the assets of the bearer or the financial ability to payback the loan in case of any deformities by diagnosing about the farm inputs and ongoing cash flow. 

Conditions surrounding the intended purpose of loan. What is the risk associated with your farm enterprise? What are the current economic trends of farm commodity or markets? Do they make your future success more or less likely?  

Getting that first agricultural loan can be a challenge. Sometimes it is hard to even get in the lender’s door. 

Getting Approved for a Loan 

Approval for a loan will depend upon how well you present yourself, your business and your financial needs. The first step is to ask yourself exactly how much money do you need? Why do you need it? How will you pay it back? Your chances of receiving a loan will depend on how prepared you are to answer these questions. Lenders will look at your credit worthiness, your experience and training, and business management skills. When reviewing your loan application, a lender will likely use the “Five C’s of Credit” to assess your business. 

Planning

The more informed you are, the better your chances of getting the financing you need. If you want to borrow money, you must be able speak the language of finance. Prior going to the lender one should be thorough with the plans and ideas to explain and execute it properly in front of the lender so that he has no question of denying on the base on any misinformation regarding your plans. So it is important that your proposal or business plan include basic financial statements like a Balance Sheet (or Net Worth Statement), Operating Statement (or Profit and Loss), and Cash Flow Statement. Most lenders will also want to see income tax returns from previous years. 

What do lenders look for? 

Lenders will take the information that you give them, study it, and make a decision as to whether or not they want to take a chance on you. They will need to have their names on more collateral than just the asset that you buy with the borrowed money at do lenders look for? This gives them some security that their money will be recovered if you default on the loan. As a rule of thumb, they need to have about $150 worth of collateral for each $100 that they loan. This is how they can be reasonably assured of getting the $100 at auction for that piece of now-used equipment even if it’ s raining on auction day. Most lenders will also want to see that you have at least $110 available to repay $100 of principal and interest, above and beyond all other operating expenses and family living expenses. 

Loan disapproval 

There are number of reasons as one of your Five C‘s could be weak and your loan institution is not aware by your business idea or not finding any benefit in the venture. In this case the lender has to give it in return according to federal law. Just  request a free copy of the report from the credit report company. 

But don’t lose heart as getting loan is tougher but constant trying and not stopping will ultimately get you the loan. Try with the other lender on refusal as all have their own set of standards. Of course it’s a challenge but not impossible. 



Share your comments