As an agricultural lender for more than 25 years, rarely do I receive a farm history/operation description with an application. Not only would it speed up the credit process, but it could also have an impact on whether or not the loan is approved. I always try to go meet with applicants to get a feel for who they are and how they got to where they are in their operation, but not all lenders make that effort. Some may make their decision based solely on the numbers on the financials. A well-written farm story will answer a lot of questions for your lender. I always hear, “I’ve been using the same bank and lender for years and they know my operation.” Lenders retire, banks get bought or merge. Things happen, and more than likely it will happen at the worst possible time for your operation. Be prepared for the unavoidable. If nothing else, think about it as a legacy for your children.
Where do you begin to tell Your Story?
Think about your farm’s story in three sections. First, tell your reader how the operation got to where it is today; second, what does it look like today; and third, what are your goals for the operation.
1. The history should be broken down into two sections.
a. When your family acquired the farm and the chain of ownership through the family.
b. Provide a more detailed history of the operation for the last five years, as changes during this period will be reflected in your finances that potential lenders will be seeing. Discuss any capital improvements, changes in herd size, changes in owned or rented acres, weather related losses.
2. What does your operation look like today?
a. How many acres are you farming both owned or rented? How many cows are you milking?
b. Discuss your farm team and their general responsibilities. Do you have a succession plan?
c. How do you market your farm products?
d. Levels of insurance carried
e. What sets you apart from similar farms?
f. Changes to your operation from previous years
g. Discuss any big swings in income or expenses
3. List both short-term and long-term goals
a. One-to-three-year goals – Example: reduce short term debt to improve cash flow or increase weaning rate to 90 percent
b. Five-to-10-year goals – Dad will retire in seven years and son will assume full ownership of the operation.
Farm accountants and attorneys continue to recommend multiple entities to distance the farm assets and individuals from liabilities, but in the process our farm operations are getting more complicated to understand. If your operation includes more than you and your spouse, it is important that you also include a list of each of the entities and individuals that make up your operation. Include members, stockholders, and officers in each of the entities and their percentage of ownership. Also discuss what the entities role is in the overall operation. For example: Entity A owns the farm ground and rents it to Entity B who is the operating entity.
The important thing is that you are the one who tells your story and it isn’t left for someone else to interpret. If the farm has been in your family for 100 years, your story should be told. If you bought the farm yourself and your net worth is all earned, your story should be told.
Kathy Daily is the Senior Vice President of First Financial Bank’s Farm and Ranch Division. She has been an agricultural lender for more than 25 years.