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6 Tips For Buying Farmland On Credit

6 Tips For Buying Farmland On Credit

6 Tips For Buying Farmland On Credit

Starting a farm in America can be a challenging undertaking. Recent statistics show that the number of farms in the country fell slightly in 2016 and that about 8,000 farms folded during that year. There are many reasons why farms fail; however, one of the most common is due to non-payment of loans that were used to cover start-up costs. If you are planning to start a farm on credit, there are several financial tips you can keep in mind to improve your chances of success as you build your new business.

1.      Create a Business Plan

While you might have big dreams about how your farm will look and operate, creating a viable business model is one of the most effective ways to map out your financial needs. Acreage, machinery, and animals are only a few of the costs you will need to consider at the outset, and it is wise to consider a long-term financial plan as well. This can help you understand exactly how much you will need to borrow when you first start up your farm and whether you will need funding later for continued financial support.

If you have never created a business model before, you can find tips online or visit a financial planner to help you with the details. Another way to build a financial model for your farm is to find a mentor. An experienced farmer may be able to advise you about projected costs, which model is the most realistic, and how to approach lenders that specialize in farm loans. The more resources you can find to build your business plan, the better you might be able to plan the many details involved.

2.      Determine Loan Amounts

Before you approach a lender that specializes in farm loans, it is wise to understand exactly how much you will need to borrow. Being prepared to discuss this amount may allow the lender to see you in more favorable light. While it may be difficult to project exact amounts, knowing how many loans you will need can help you be better prepared for a meeting.

When determining loan amounts, it is important to consider what kind of loans are available for farmland, equipment, and other necessities. Most loans related to farming are amortizing mortgages, where you pay a set amount each month to bring down the total cost of what you borrowed, plus interest. Some lenders may have interest-only loans, where you pay interest costs instead of paying on the principal. Being prepared to discuss loan amounts can help you feel more confident about the borrowing process.

3.      Ensure the Farmland Is Surveyed

If you have already visited the acreage you plan to buy, it is wise to have it professionally surveyed before you take out your loan. Surveys can map out exactly how much land you are purchasing and eliminate confusion about the actual acreage being offered. A survey of the land can also offer important details about its features, such as whether there are natural bodies of water present and how closely it borders land owned by other individuals.

It is likely you will have to pay for a farmland survey and while the cost of surveying can vary, it may be a worthy investment. Not only will you be able to calculate your loan needs with more detail, it may also help you understand whether a parcel of land will properly suit your farming needs and plans.

4.      Consider Operational Costs

As you calculate how much you will need to borrow from a lender that specializes in farm loans, you might want to keep operational costs in mind. This can be especially important during the first year, when you are trying to establish your agricultural business. Some lenders may offer loans for these costs separately, while others might allow you to borrow additional funds along with what you borrow to pay for the acreage.

There are a variety of costs that you might want to add to the total cost of your loan. For example, water and irrigation needs, animal feed and housing, and outbuildings such as sheds and secure storage buildings. You may also require vehicles such as mowers, four wheelers to travel quickly over your land, and tractors. Discuss these needs with your prospective lender and consider whether you may need additional funding for these requirements in the future.

5.      Prepare Paperwork

When you approach a lender that specializes in agricultural loans, such as Western AgCredit, being prepared with proper forms of identification, financial information, and other data pertinent to your loan can have a positive impact on how you present yourself as a responsible borrower. Being prepared shows a lender that you have done research on the properties you are considering and that you understand the borrowing process.

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One way to be well prepared for a loan request is to order your credit report from one of the three main reporting agencies. You can obtain this report for free once every year. Review your report carefully, note any errors, and then, if possible, take the time to pay off small debts. When you know what is being reported, you can be better prepared to discuss your credit with a prospective lender.

6.      Be Realistic

While you might have an image of the ultimate dream farm in your head, the reality of available loans, your credit situation, and what you can afford to spend can be important focal points for keeping you grounded. Your prospective lender will probably ask you a variety of questions that remind you of these realities, but this may be an asset when it comes to borrowing conservatively. Trying to fulfill dreams beyond your means may put you in over your head, and you might find yourself deep in debt instead of being successful with your new farm.

To help you borrow within your means, you may want to remember that expansion can be possible in the future by being realistic at the start. Taking out affordable loans may allow you to pay monthly loan installments while building capital you can reinvest into your farm at a later date. While you may not be able to expand quickly, this type of realistic growth plan can foster financial stability.

Buying a farm can be a challenging yet exciting venture. Being prepared to take out loans, finding a knowledgeable lending company, and understanding the borrowing process can all help increase the chances of being a successful borrower and landowner.

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