We’ve seen firsthand working with farmers and ranchers that expectations for the loan application and approval procedure are low, and the process isn’t exactly favorable for speed and efficiency.
We know that regular communication and simple, efficient practices are crucial to helping agriculturists focus on what is most important, their property. That’s why we’ve compiled a list of documents to take with you when applying for a loan.
How Do Agricultural Land Loans Work?
An agricultural land loan is like a mortgage. You’ll need good credit, a down payment, and a low debt-to-income ratio, just like with a house. However, land loans are riskier than home loans because the lender has no property to serve as collateral. These loans include larger down payments and interest rates to offset this risk.
Paperwork Needed to Apply for an Agriculture Land Loan
These 12 documents are crucial agriculture loan requirements, and every farmer is advised to arrange them beforehand when approaching the lenders. Failure to have any of these papers at hand can delay the approval process, and the farmer might lose the chance of getting a loan.
Borrower Authorization and Loan Application – A loan application is the standard paperwork required for a farm loan. It introduces your business and allows the lender to do a background and credit check. Without this paperwork, the lender cannot begin developing a loan program for your company. This is an essential agriculture loan requirement by lenders across the United States.
Proposed Collateral Identification – Lenders require up-to-date and correct information on any land used as security for the loan. This document comprises parcel IDs, county and state information, the name of the title, and the estimated market value. This information is used to create personalized loan terms for American farmers.
Federal Income Tax Returns – Gains and losses, tax structure, and general operational facts are acquired from federal tax returns and used to set loan conditions to keep borrowers’ risk at a minimum. The lenders always keep their client’s financial position in mind when designing the loan so it can be beneficial for them and their clients.
Financial Statements – Make sure to bring the income statements and year-to-date balance sheets to clarify your commitments and operating assets that are not yet evident. For example, seed payments on a balance sheet allow the lender to use the investment value to offset the expenditure.
Reports on APH Yield – Actual Production History reports give the most context for your operation’s success over ten years. APH rules protect producers from yield losses caused by natural causes and allow the lenders to avoid using state averages that are often substantially lower.
List of Equipment – Agricultural equipment is essential to successful farming operations. Not having the correct equipment might impede your operation’s performance. As a result, the lenders analyze the equipment list to assess risk and alter your loan structure to ensure you can service your loan and equipment. Your advanced equipment can help the lender determine the performance of your yield annually and help them know about your performance.
Statements of Income – Balance sheets and revenue statements disclose crucial information about spending habits, history of earning income, and general capacity to pay the debt. It also helps the lender determine if the applicant makes enough to make the debt payments and other short-term liabilities if approved. Include proof of income from every source, no matter how small. The more money you earn, the better your chances of getting approved.
Current Crop and Livestock Inventory – Lenders understand the monetary worth put in the ground during planting season. Your current livestock and crop inventory sheet allows them to record your investment and apply it in their asset valuation to keep data of your assets and your business value for their record and, as said earlier, for proofing.
Reports on A/R and A/P Aging – Aging Reports for Accounts Receivable (A/R) and Accounts Payable (A/P) give information not covered in the general financial statements and balance sheets. It also helps the lender determine the possibility of collection, which may enhance your application.
Debt Payment Plan – The debt schedule, combined with the other papers, presents a historical picture of your firm, allowing the lender to focus on your strengths while compensating for flaws. They not only regard things as obligations and liabilities but see them as ways for you to increase your profits in the future. For example, they realize that farming necessitates investment, such as acquiring land and equipment.
Statements of Assets and Liabilities – Balance sheets are an essential document for loan processing as they tell lenders about the applicant’s financial stability and how secure it would be to lend to them. These statements are used to fill in the gaps in the balance sheets. It helps to validate your line items, which helps to reflect your current financial situation more accurately.
Forecasted Income and Expenses – To help you meet your long-term operating objectives, the lender must first understand your farm loan repayment strategy. They can develop a more versatile product if they know next year’s predicted income and costs. This will increase the trust of lenders that they should give you a loan as this borrowing will be secure in the coming years by looking at the forecasted data. This can also help you determine where you stand and increase your loan approval points.
What Should Be Your Next Step?
As a non-bank lender, United Farm Mortgage can offer tailored tier-priced, borrower-specific solutions based on your own financial goals and the unique demands of your organization. Our experts can help you find the right financing option and process your applications faster than you thought possible.
Please talk to our lending specialists today to learn more about our financing alternatives. Get in touch with us at United Farm Mortgage to apply for a loan now and expand your farming business.