Financing The Food - Farm Financing Services
When a person thinks of all the things that make up a farmer's job, typically they think of plowing, planting, watering and harvesting. Although these make up the basics of the farm operating cycle, there are many other issues that also occupy the farmer's mind. One of the most critical and often stressful of these issues is borrowing money to finance the farm.
Although each category can be further customized in a variety of different ways, farm loans can be divided into three basic categories, land and real estate loans, capital investment loans and operating lines of credit. Whether a brand new operation being purchased or a multi-generational family farm, all three of these categories will usually be part of the business. The primary differences between the three categories are how the proceeds of the loan are used and how long the farmer has to pay it back.
- Land and Real Estate Loans - Just as it sounds, these loans are used to purchase the land and permanent buildings that will be used in the farm operation. Sometimes this is the purchase of a farm by a new farmer, a young farmer buying a part of a family farm or a well established farm having an opportunity to expand by purchasing additional land. As with most real estate loans, these credits are spread over long periods of time with maturities usually in the twenty to thirty year range.
- Intermediate Capital Investment Loans - In addition to farm land, the farmer will need many other assets to make the farm operational. Some examples of this are tractors, plows and other equipment for crop farms, breeding stock for a meat producing operation and specialized equipment such as milking machines for a dairy farm. the terms of these loans are directly tied to what is known as the useful economic life of the asset being financed. For example a tractor may last five years while a milking machine may last for fifteen.
- Operating Line of Credit - Usually with a term of one year or less, these lines of credit are used to finance all of the expenses, such as seed, fertilizer and pesticides as well as planting and harvesting costs, involved in producing a single crop or herd. When the harvested crop is sold, the operating line is paid off completely, with leftover funds to be used for other loans and profit for the farm. The farmer can then start back at $0 for the next crop cycle.
By carefully using the three types of loans together, a farmer can successfully manage a farm so as to keep the farm operating and profitable. A trusted farm financing lender can be an invaluable professional partner for the farm.