Call Janus Ag Finance at 303-847-0611

How to Get a Farm Loan –

Guaranteed!!

Many ag borrowers have no idea how an investor evaluates a loan. They often send extraneous information that is of no interest to the lender because they have no idea what a lender is looking for, so here is what you need to successfully obtain a loan:

Step 1:

Keep your credit score above 680. Don’t let a dispute over a minor repair or purchase result in late payments that will quickly reduce your credit score. Also-do not carry a balance on credit cards that is more than 50% of the authorized credit limit. If your card allows up to a $10000 draw-do not carry more than a $5000 balance from month to month. Be cautious about co signing a loan for a child or a friend-if they miss a payment it will destroy your credit scores.
Do not leverage your property above a 50% debt/asset ratio. We will look at all your assets at fair market value and at all of your debt. We do not want to see more than a 50% debt/asset ratio, so if your total assets are worth $5,000,000 we do not want total debt to exceed $2,500,000. We have learned over 50 years of making farm loans that returns to agriculture do not justify more than a 50% debt load. I frequently meet borrowers who have convinced themselves that some land they want to buy will raise a crop that will service more debt, but they forget that even though a given deal may look viable in the short run, over the long term you must account for weather changes such as drought or hail, changes in commodity prices, disease or a host of other variables beyond your control that have the potential to wipe out your optimistic projections and leave you-and us as the lender- in a mess. We will loan up to 70% of the value of the collateral (land) but we also look at all your debt and all your assets and want that ratio no more than 50%.
Your tax returns for the past 3 years need to show cash flow available for debt service of at least 150% of the total debt payments. This is a somewhat complicated calculation. We add back interest and depreciation that you might have deducted under schedule C, E, or F. but from your total income we also subtract taxes paid and family living expense ($15000 per adult and $10000 per dependent) Nobody likes to pay taxes but if you want to access money at a reasonable rate you must show a 50% margin on your tax returns over the total yearly debt service you have.
We have borrowers who think gross income matters to a lender, but it does not. If you gross $1,000,000 but your expenses are $975000-this does not work. We look at net operating income. Someone may only gross $500000 but if their operating expenses are only $200000 they have $300000 available for debt payments and that is better than someone who is churning a lot of money but not generating any real net income.
The same rule applies to a purchase. We will count all the income you currently have and all the net operating income you project from the property being purchased (subject to review by a certified general appraiser) who will confirm that the income numbers are correct.
Don’t forget about non farm income, W-2 income, rental property income and any other sources of income that appear on your tax return. The farm itself may not service the debt but if you have other income this counts toward your debt coverage ratio. It also diversifies risk; someone with a good job in town will have steady income to supplement the farm income in a bad year and make the difference between defaulting on your loan and being able to service the debt.
Stick to the important facts. Don’t try to wow us with how great the property is, or what a great manager you are, or how great the income will be. The taxes your balance sheet and the appraisal will tell the story and that’s what we care about.

Do not try to grow too big too fast. It takes time to accumulate equity and generate free cash flow. If you cannot achieve these ratios consider renting the property for a couple of years to bring your ratios into an acceptable range. The above ratios may seem out of reach but with patience and discipline you can become the kind of borrower that bankers love!!

Be careful about a lender who will go beyond these basic guidelines. There are con men out there who prey on farmers who are desperate for a loan; they charge up front fees and never do a loan-or they do a loan with terms that are so onerous that you will fail to make the payments and they will foreclose on your property. If the loan looks to good to be true-it probably is.

I gave you a lot of information; if you are confused just give us a call at 303-847-0611 and we will help.