Hard Time Getting A Loan?

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Many dairy farmers are having trouble getting funding to continue to operate in this poor price environment.  Banks have become increasingly conservative about lending money, which is not good for farmers.  Millions of dollars in assets cannot even get operating loans for some farmers.

The low milk prices of 2009 and low forecasts for 2010 have really hurt dairy farmers' ability to get loans.  Operating loans, common a few years ago, are getting very hard to find.  Refinancing the mortgage is often frowned upon, or producers don't want to have to do this.  While there are no real good answers for this financial crisis, there are a few things producers should keep in mind when trying to get loans to continue operating with negative profits.

First, a financial institution wants to see that the producer can make the payments.  This should not be as hard to do, if the farmer has little or no debt.  For farmers that have larger amounts of debt, this must be done with cash flows.  If the farmer can prove they have cash flows that can handle more payments, this will be very helpful.

Collateral is very helpful in attaining a loan.  This is especially true for non-operating loans.  Most of the time collateral is required for a large agricultural loan.  This is where having large amounts of assets comes in handy.  There are more things to use as collateral.

Many lenders are now beginning to look at the dairy's perormance records to determine if the farm is likely to be profitable.  Lenders are learning how to analyze dairy herd records in order to find the information that will most directly affect cash flow and profits.  They can use this information to determine whether or not to loan money to the farm.

For farmers that still cannot get loans there are other options that can be looked at.  First, try writing up a plan for the future of the dairy and point out reasons that the dairy will be able to pay back loans.  This may focus on minimal debt, high production, cow longevity, and may help the farmer to connect with the lender a little better.  Another option is to sell some assets.  This may be machinery, animals, land, or any other thing that the farmer thinks he can live without.  This is an option that most producers don't like to consider, but it may allow the producer to stay in business.  A good example of this would be a producer that sells all of their forage harvesting equipment and then hires a custom operator to harvest forages.  This will increase cash flow, and the job still gets done.  Some farmers may also be able to work a second job or produce something elso on the side, such as running a roadside stand.

These are desperate financial times for many farmers and there are many ways to survive the low prices of 2009-2010.  Cash flows and collateral are important factors when looking for operating loans.  Try looking at all available sources, such as local banks, Farm Credit, and FSA.  Each producer can find ways to help improve standing with lenders or improve cash flows.

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2 Comments

As an employee on a modern dairy farm, I see firsthand the trials and tribulations that the current economy is thrusting at the dairy farmer. In any times, let alone a recession, it is rather difficult for any business to ask for money, especially if they are losing it on a daily basis. In animal agriculture, this is a frequent occurrence as profit margins are routinely low and little changes in supply and demand can make a year prosperous or pitiful.

As I seek to pursue a career in the dairy industry upon graduation, the financial aspect of starting such a business is very frightening in a poor economic environment. It's good to see that lenders are using new methods to assess dairy farm profitability and provide realistic loans to help keep farms sustainable through tough economic times.

As an employee on a modern dairy farm, I see firsthand the trials and tribulations that the current economy is thrusting at the dairy farmer. In any times, let alone a recession, it is rather difficult for any business to ask for money, especially if they are losing it on a daily basis. In animal agriculture, this is a frequent occurrence as profit margins are routinely low and little changes in supply and demand can make a year prosperous or pitiful.

As I seek to pursue a career in the dairy industry upon graduation, the financial aspect of starting such a business is very frightening in a poor economic environment. It's good to see that lenders are using new methods to assess dairy farm profitability and provide realistic loans to help keep farms sustainable through tough economic times.

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