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Farm Loan Preparation for Ranchers

Lenders say yes more often to ranchers who show up organized. Preparing your records and your story before the meeting is the best thing you can do for your application.

Know what you are borrowing for

Start with the purpose. Operating loans cover yearly costs such as feed and inputs. Intermediate loans often fund equipment or breeding stock. Real estate loans cover land and improvements. Each has different terms, security and repayment schedules, so match the loan to the need.

Be clear about how the money will make the ranch stronger and how it will be repaid. A lender wants to see a plan, not just a request. Borrowing for something that will not pay for itself deserves a second look before you apply.

Be ready to explain how a purchase would change the herd and the work. A lender who sees that you have thought through labor, feed and marketing is more at ease than one who hears only a price.

Understand what lenders weigh

Lenders commonly look at your repayment ability, your financial position, your experience, the security you can offer and your management. Those are often summarized with the idea of the five Cs of credit: character, capacity, capital, collateral and conditions.

Ask the lender directly how they evaluate applications. Different lenders, including commercial banks, Farm Credit institutions and USDA FSA, have their own rules and programs, and terms change over time. Confirm the current details with each one instead of relying on what a neighbor heard years ago.

• Capacity: can income cover payments
• Capital: what you own compared with what you owe
• Collateral: assets that secure the loan
• Character: your record of paying and managing
• Conditions: purpose, markets and the economy

Gather your documents early

Pulling records together takes longer than people expect. Start weeks before the appointment so you are not hunting through drawers the night before. Organize copies in a folder, and keep electronic backups.

Expect the lender to ask for several years of history. If your records are thin, an accountant can help you build clean statements from bank records and tax filings.

• Balance sheet and income statement
• Cash flow plan for the coming year
• Recent tax returns
• Cattle inventory and herd records
• Lease agreements, deeds and land descriptions
• List of current debts with balances and terms
• Insurance information
• Resume or summary of your ranching experience

Prepare your plan and your story

Write a short business plan. Describe your herd, land, labor, marketing plan and what you will do with the loan. Include a realistic budget and cash flow plan and show how you tested it against lower prices or poor weather.

Be honest about weaknesses. Lenders respect a rancher who knows the risks and has a plan for them. Hiding problems or overstating numbers damages trust and can lead to denial.

Questions to ask the lender

A loan is a long relationship. Ask questions until you understand the terms and the total cost. Take notes and ask for written summaries.

Bring your questions in writing and bring a family member or partner who will share the debt. Two sets of ears catch more, and everyone who signs should understand what they are signing.

• What interest rate type is offered and how can it change
• What fees apply at closing and during the loan
• How is repayment scheduled and can it follow sale dates
• What collateral is required and what happens if I cannot pay
• Are there penalties for paying early
• What reports will you need during the loan
• What other programs might fit my situation

After approval

Keep your side of the agreement. Make payments on time, send reports when asked and tell the lender early about trouble. Lenders can often adjust terms if you speak up before a problem becomes serious.

Review your plan each season and compare real results to what you promised. Keep clean records of how loan money was spent.

If a payment looks hard to make, contact the lender before it is due. Ask what options exist, and ask in writing what any change would mean for the total cost and for the security you have pledged.

Common mistakes

Frequent mistakes include applying without a plan, borrowing more than the operation can repay, mixing personal and ranch finances, leaving out debts and ignoring the fine print. Another is shopping only on rate and ignoring terms and service.

Talk to an attorney before signing anything involving land or large obligations, and consider having an accountant review your numbers. This article is education, not financial or legal advice.

• Do not skip the written plan
• Do not hide debts
• Do not sign what you do not understand

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