Hi all, I am looking into farm loans and am wondering if any one else has gone through the process. What are the pitfalls? All the loans I have any experiance is a personal loan and our morgage and that was such a scarry process I don't remember much. anyway I am looking into expanding our goat enterprise and meed more land. Is there any company I should be talking to over others? I could get a home equity loan but I don't want to do that. I want the farm loan to stand alone. Any Ag business majors out there or ag. finance? I am also going to talk to the county extention agent but wanted info from here too. P. S. If anyone hasen't talked to an extension agent before they are amazing at helping w/ questions and so is the local ag. college. KNOW and USE the info they have I have found them to be priceless!!!!!! thanks Katharine
Katherine, I'd get in touch with Farm Credit Services if I were you. I've gotten loans from them on 2 parcels of land and they have been great. They also providing operating loans but that's something I don't really want/need at this point. As usual, just my 2 cents. Mike
All my farm loans are through my local bank. I prefer that over a large company. If I need an extension, or want another loan, or just want to talk something over, I can go in and talk to my banker. He knows what I need and he knows what he can do. He doesn't have to go check with the corporate office, or worry about company policy. Jena
When one is a small operator, with out too much income or assets, then I doubt that any loan will "stand alone" - from my experience. The bankers will get EVERYTHING tied up. No way out. If you can make (a lot) more money with their money, then take it and pay the price of blood and entrapment. All they want is everything you have, even if you just want $5. But, if you can't wait, and see a real opportunity, and it is time-sensitive, then maybe go ahead and take their money - they have lots of money. Make some spread sheets and show the income and expenses, and cashflow - be conservative - its farming - anything can happen - and will. Present a good picture - organized, show assets and liabilities, and your present income and expenses and the new. They will be impressed if you have a good "package". However, make sure you want to convince them to give you money - they probably will - then you gotta pay it back - or have big problems - that are not very nice. On the other hand if you can build up slow with out them, that is sometimes better, just depends. Good luck. Alex
The problem you may run into is the "control" issue. Ag loans sometimes entail ideas such as "we want to see X pounds of fertilizer and weed poison." They wind up telling you how to farm. Secondly, if you are borrowing money to put into a depreciating item, such as a tractor, you should ask why. Another trap to avoid is borrowing money to make a future crop that will be sold at wholesale prices. There is too much risk there for too little reward. If the crop can be sold to the end-user, then you have enough profit margin to make the loan feasible. If not, then you can quickly wind up borrowing next year to make up for this year's mistakes. That cycle ends up in losing the farm.
Folks, Pay attention to the original question. Okiemom stated that the loan was for more land, not for making a crop or operating expenses. It is basically a mortgage. As long as she has a reasonable down payment and meets the lenders credit requirements she should be ok. There will probably be clauses on the mortgage to protect the lender. For example, there is a clause in each of mine that states if I cut trees to sell I have to get the lenders written permission and they have the right to require any proceeds to be paid to them directly against the mortgage. I asked them about it and they said as long as the loan was in good standing they normally waive that requirement. Nothing too onerous or unreasonable. For those that complain about the banks/lenders. If you don't like their terms and conditions then don't do business with them. Mike
Thank you all for your replies. We have 13 acres and a house. I have 20 does and will be having babies soon to increase the herd and sell for income. These numbers though are not big enough to get anything real going. I have been researching and doing ground work for the marketing of goats. I have found there is a market and I have outlets for the goats I produce I just don't have the supply yet. My husband has been substidizing my "business" and our "farm" is seperate from our "Home". I would like to know how to expand w/o a loan. i just don't see this as an option. we could sell our house and land and buy more w/ cash but it would be raw land and we would have to live somewhere. I have two small children so "roughing it " is not an option for me any more. The land would also be a fairly long commute for my husband. The land we are looking at now is on an undeveloped part of a nearby lake and is zoned Ag. In the not too far future 15+yrs. maybe sooner it will be desired as lake property. Yet the price now is very reasonable for property that is close for comuting but it is still raw $1,700/ac. This is just a piece I liked w/ potential for the future not one we are buying. I have looked at several and will continue to look as a stupid buy now will haunt us for years. FACT: land is non renewable so owning land is never a bad buy. It's the financing that will hurt. Q: Is the intrest on an Ag. loan deductible? Is it considered a business expense??
Have you considered other ways to expand? Maybe you can lease some land to use instead. Try approaching owners of vacant land near you. Around here, pasture ground rents for about $30 an acre. I use some for free. The owner just wanted it ate down. Can you use rotational grazing to expand the capacity of your land? You can double or triple it's carrying capicity that way. Have you considered using more feed to raise the goats (I don't know much about goats)? It might be cheaper/easier/less risky to get a small loan for feed (basically an operating loan) until you sell the goats vs. buying land. I don't know where you are, but $1700 per acre is pretty high for pasture ground around here. Will the goats actually return enough to pay for that? If not, you might want to reconsider, unless there are other reasons to buy as well. When I last bought some ground, I made sure that the uses I planned for it would return enough to pay for it. I am not too worried about making a profit, but the place has to pay for itself. The bank will also look at that. The interest on your loan would be deductible, whether it was to buy land or an operating loan. Jena
