Getting a loan to purchase a farm, or an operating loan, can seem like a challenging task. Farmers often have questions about what information they’ll need to have to successfully obtain a loan, how long the process will take, and more. With a little preparation, the process can be much more manageable than it seems. Here are some tips on ways to prepare for getting a farm loan:
Start by gathering the necessary documents. Lenders will want to review financial statements, tax returns, business plans, bank statements, pay stubs, and entity documents at the beginning of the loan process. The owners of the farm should also expect the lender to pull a credit report to be able to determine a complete debt service. Experienced farmers will more than likely provide historical tax returns and financial statements whereas new farmers will need to provide financial projections. Some farmers report their farm earnings on their personal tax returns, while others have a separate entity created for their farm. Farmers should expect to submit both personal tax returns and farm tax returns if they fall into the second category.
Have a clear and precise description of business/farm operations. This can be achieved by creating a business plan. A lender may not require a business plan for a farm loan/operating loan; however, having one in place helps the lender understand the business operations of the farm quickly. A lender will be able to get the ball rolling on a loan quicker if the operational plan of the farm is well-documented and clearly written.
Try to remain patient during the process. Typically, a loan will close within 30 – 60 days after the application date, but some circumstances can prolong the process. This can vary depending on the loan program, loan structure, size of loan, appraisal procedures, etc. It is important for farmers to choose a lender they are comfortable with and have confidence in.
With a little upfront preparation and clear communication, getting a farm loan can be a smoother process than you may think. If you’d like assistance putting together a business plan with financials or would like to discuss any funding options, contact us at (859) 550-3972 or kcard@kcard.info.