How to Secure an Operating Loan

It’s no secretfarmers across the country continue to struggle. In fact, 31% of bankers who participated in Creighton University’s August Rural Mainstreet Index reported rejecting a higher percentage of farm loans than they did in July.

Jim Moriarty, a dairy specialist with Compeer Financial, says operating loan and credit line renewals are likely to be more difficult than they usually are.

If you’re planning on seeking financing in the coming year, there are four ways top operators can make securing that loan easier and faster.

1. PREPARE AN ANNUAL REPORT

Write up an annual report of your operation. A good annual report not only describes your operation’s performance during the past year but also highlights the opportunities and challenges you face, says Peter Martin of K•Coe Isom.

“This document helps avoid misunderstandings among the chain of people who will review your loan request,” he explains. “I had a client who was quite surprised his loan request was declined after a couple of weeks. Turns out he had communicated his operation’s information in a conversation, not in writing. By the time his loan request had been passed to the credit analyst and approvers at the bank, it was error-ridden. A written report removes that trap.”

Include important information in your report, such as the past year’s crops, acreage or equipment purchases or sales, employee turnover, successes and failures.

2. GET YOUR FINANCIAL HOUSE IN ORDER

Provide your banker with high-quality and timely financial information. The financial statement is a key form of communication between the lender and the borrower. Producers should be sure their balance sheet reflects their assets and liabilities at true market value, Martin says.

“Double-check your income statement to ensure it gives a true accrual-based picture of what happened in the preceding year,” he advises. “I particularly like to see a cash flow statement. When paired with an income statement, it shows exactly where your money came from and where it went.”

3. PRESENT A PLAN

“It’s your job to present a plan to your banker,” says Curt Covington, executive vice president of agriculture finance for FarmerMac. “It’s not your banker’s job to form a plan.”

It’s also important to provide income projections and assumptions. “Your outlook should include input costs and expected profit and loss. Beyond that, offer best-case, most likely and worst-case scenarios of expected revenues and expenses,” Martin says. “All three ‘what if’ projections should demonstrate your ability to repay the loan.”

4. PLAN YOUR ASK

“Determine how much you need for your operating loan and then be able to justify it,” Covington says. Be prepared to ask your banker for the financing you need, including equipment financing. According to Covington, bankers do not want to hear, “I’ll just take the same amount I took last year.”

Taylor Leach
Tue, 11/20/2018 – 12:00

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How to Secure an Operating Loan

JOB TITLE: PRE-SELL DAIRY HYGIENE SUPPLIES SALES SPECIALIST