Revised & Updated: The Farmer’s Guide to Agricultural Credit

>> Click here to download The Farmer’s Guide to Agricultural Credit (PDF)

Excerpt from the Introduction:
Accessing capital is one of the many challenges facing farmers. Agricultural financing is crucial for maintaining production, expanding operations, or trying different enterprises. To maximize profits, more farmers and farm entrepreneurs are turning away from simple commodity crops in favor of more complicated or diversified enterprises. These new business models may be unfamiliar to lenders and the farmer may need to take some extra steps in preparing and presenting his or her business plans. This guide is a tool to help transitioning farmers and farm entrepreneurs take those steps.

This guide is aimed at helping farmers get ready to ask a lender for the financing needed in new and innovative ventures. When used as part of an overall enterprise development strategy, it can help farmers and lenders achieve mutually beneficial results when they sit down to do business.

All good lenders want to see you succeed and build equity; their profession is to invest in your success. But your challenge in seeking financing is to find the right lender for you. This guide can help you seek experienced agricultural lenders to help you solve problems–and avoid them in the first place! You want to find a lender who is knowledgeable and open to learning about new, profitable crops, innovations in farm production, and new ways to market farm goods.

This guide was written to:

  • Improve your understanding of agricultural finance
  • Help you get ready to apply for financing for your agricultural or farm-related venture
  • Give you tools to increase your opportunities for accessing capital
  • Connect you with other resources where you can learn more

By using this guide, you’ll learn how to:

  • Assess and potentially improve your credit score
  • Initiate the business planning process for your farm enterprise
  • Approach a lender with a well-written business plan and loan application materials

>> Click here to download The Farmer’s Guide to Agricultural Credit (PDF)

Excerpt from Ag Lending 101:

Lenders gain confidence in your capabilities by looking at your:

  • Prior production history
  • Personal and business credit history
  • Your financial records (including balance sheets, inventories, income statements or tax returns)
  • Farm plan or business and marketing plan

Lenders need to see your path to repayment of the loan, shown in your:

  • Production or management plan
  • Marketing plan
  • Projected cash flows
  • Collateral, equity, or other off-farm income streams

By learning how lenders look at loan applications, you can avoid wasting time during the application process. The more questions you anticipate, the more time you can save. There are common issues that all our lenders agreed were important in dealing with loan applicants. There are common issues that lenders agree were important in dealing with loan applicants. The “Five C’s” are one way of understanding these issues.

The Five C’s:
1. Cash Flow (Capacity to repay the loan)
2. Capital (Equity investment in the enterprise)
3. Collateral (Security for the loan)
4. Conditions (Considering the ‘big picture’)
5. Character (Capacity to manage a successful enterprise)

>> Click here to download The Farmer’s Guide to Agricultural Credit (PDF)

About the author

Scott currently serves as Executive Director of the Rural Advancement Foundation International-USA. Scott’s specialty is financial infrastructure, including access to credit and risk management for value-added producers. He previously directed the organization’s Farm Sustainability program, providing in-depth financial counseling to farmers in crisis, education on disaster assistance programs and access to credit, and addressing the needs of mid-scale farmers who are increasing the sustainability of their farms by transitioning to higher-value specialty markets.