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Discussion Board - line of credit

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02-15-2014 16:04:00

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Looking for input on operating loans. I'm finally at the stage where I think I have some equipment that I could go and rent/lease a lot more land than I currently do (about 120 acres of hay, but only 16 acres of grain ground. Want to find about 30-50 acres more grain ground). As I look for ground options I also need to look for an operating loan, no more cash avaible for seed/fert.
I'm finding that though I think I have equip (67' 806, JD 70, JD 336 baler, 1091 Hesston Swather, JD7700 Combine, 73' C65 grain truck, along with some other things not worth mentioning but get the job done)the banks don't. I've been told that they don't want to loan on anything more than about 15 years old.
Ideas or suggestions???

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02-20-2014 06:33:59

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
If you have a good plan and decent credit you"ll be fine. One thing I have noticed is that part-time farmers tend to wait until they NEED an opperating loan before they go and try and get one. I would suggest it"s easier to start with a small opp loan when you may not techinically even need it so that you build a good relationship with a banker before you hit them up for big money. With that said, my experience is that bankers love farmers with off farm jobs. The other thing that they like is row crops. If you have row crops they will require you to have federal crop insurane so they know that they have themselves covered. The hay will be the hardest part to finance most likely since there is no insurance. Some bankers might want detailed production history and sales records from the past years on the hay since it has no federal crop insurance paper trail.

I firmly beleive everyone that is farming on any scale needs a good relationship with there banker. However that doesn"t mean you should borrow all your money from them either. Get a line of credit approved at the bank FIRST and then start checking rates on supplier financing. In this age of low interest rates there is no reason to finance things like seed through a bank if your at all limited on your credit line. All the major seed companies offer some form of financing that will be cheaper than what ever your bank is charging. And from what I have seen, they have very low credit standards. Similar many fertilizer dealers have similar financing as well. Usually these kind of input finance deals are ran through farm plan or a similar company.

Like Jim mentioned in his post, paperwork is part of the deal with any loan. A balance sheet, projected cashflow/budget, and Previous years income/expense statment are the minimum. Some, but not all lenders like a marketing plan. And their is some variation in how each individual lender wants the documents prepared. For example FSA has some quarks about their Balance sheet compared to how my local bankers wants it. So talk with any prospective banker and see just EXACTLY what each requires and how they want it prepared.

Finally if all else fails at the local banks FSA will give you an opperating so long as you have a good plan. However they have MORE papar work than what a typical bank will require and there are some headaches. But even the headaches, FSA is still worth it for their low interest rates compared to other last choice lenders.

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02-17-2014 07:36:40

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
You might find someone who could use the crop to back you, I put up the money for a guy a couple of times and he sold me the corn. I bought the corn at a fair market price when it was harvested and the money I paid for the inputs was knocked off with no interest charged because I put some pairs on his field that fall. The way we did it was I bought everything and was billed direct, not because I did not trust him but it just made everything easier in the long run and removed all doubt about what went where.

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02-17-2014 04:58:33

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
Talk to the folks at Farm Credit, Farm Bureau Bank. Farm Plan, your feed and supply store, and also at FSA. FSA has some loans of last recourse, meaning you got to get turned down somewhere else first. Also, talk to local small banks, the majors in my expereince wont play. Two examples.... I needed a letter of credit for planning and zoning on a subdivision road. Relatively straight forward, I pledged a CD as security. Ended up costing me 3% of the value of the letter to get them to write it to use my money as a pledge that was paying .5%. It took a local bank to write it for me, still charged me 1%.... Finally got P and Z to just hold a cashiers check on me.

I'd not worry about having everything ready up front, go talk to them. See what kinds of paper work they want. No use working and getting all kinds of statements and stuff together if they want something else or something specific.

The other option is private paper. Its out there. With today's low interest rates there are a lot of individuals who are loaning money to private individuals. It's not the low bank rates you see on first mortgages but remember, over half of all Americans carry no debt. Its called many things, venture capital, private paper, etc. Look to pay a premium rate, sometimes very premium, but its out there. Right now I'm seeing rates from a low of 10/11 % for first mortgage loans up to 28% for small personal loans for things like bail and utility bills with secured vehicle loans somewhere in between.

Lastly, don't rule out credit cards. There have been a world of businesses started using them. While the offers arent as generous as they once were you can still get a credit line opened up there. Make the minimum monthly payment and then pay off at harvest.

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02-16-2014 20:56:21

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
If interested in grazing check out the magazine stockman grass farmer also check out fha hopefully there more honest then the ones we got they are very selective around here on who gets credit. so true about the banks and rules they make up a favorite hobby of mine help those that the banks wont touch got friends the same way most grazers the banks dont like them they prefer the type that ends up being the banks hired man the ones that buy all new equipment

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02-16-2014 07:04:06

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
Haven't had to deal with that in a lot of years,but back in 81 I went to a smaller local bank. I'd been dealing with a multi location bank and it was getting tough to deal with them way back then. From what I hear it must be dammed near impossible these days. The little single location bank kept me in business when I'd have been done for for sure otherwise.
I haven't borrowed in years,but I poked my head in the Presidents door a week or so ago when I went to cash some checks,told him what was going on with the wife's truck and the insurance company. Asked him about getting a short term note on a better one if I decided to just settle. He just grinned and said "You're gonna pay it back aren't you?".

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Iowa Jim

02-16-2014 05:09:17

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
To deal with bankers today you have to have a professional approach.

You need the following:

Tax Returns

Balance Sheet (COMPLETE)

Budget to determine Cost of Production

Marketing Plan

If you don't have that, don't waste your or the banker's time.


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02-16-2014 16:18:01

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 Re: line of credit in reply to Iowa Jim, 02-16-2014 05:09:17  
Have all of that. What it seems to come down to is that if you don't already have the money you are asking for in a savings account somewhere, or three times that in colateral that is new enough the bank can take it to the dealer they just aren't interested in loaning any money.
Good records, good credit, good projected cashflow and ambition just don't seem to matter.

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02-20-2014 07:44:48

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 Re: line of credit in reply to dmiller, 02-16-2014 16:18:01  
Yup, anyone who has not borrowed money for a few years might just as well take everything they think they know and toss it out the window. Very weird (in my 40 years of borrowing) market for loans right now.

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Tom Schnitzler

02-16-2014 05:01:33

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
It's time to get your pencil and paper out and see if it makes sense to go through with it, the banker needs a balance sheet, crop history, proof of insurance, I wouldn't walk into a bank empty handed and think he is going to give me thousands of dollars, they got smarter than that, took a bit but they did!

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02-15-2014 23:59:52

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
Lots of luck ive been to a few banks same as others around here.they go like this whats your expence you give them your expence both farm and personal then they ask whats your income you give both farm and off farm and then they will tell you farm income dont count!! Its happened to me and others it worse for single because your off farm income is less than on farm . it never ceases to astonsh me a guy thats got over a million dollars of farm land paid for and couldnt borrow a dime. ag banks are the same way its not what you know its who you know ive seen a few that are operating on grandpas money and uncle sugar have no problem (one only had corn on the end of the field he had to slow down to make a turn ) . in a way its helped me because if a cant pay for i dont get it

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02-16-2014 16:26:20

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 Re: line of credit in reply to farmerwithmutt, 02-15-2014 23:59:52  
The pay as you go plan has always worked in the past. I'm at a place now though where it just will not allow me to get any bigger (or at least not fast enough to get there before I'm too old to care).
In order for this "farm" to ever be more than a way to keep busy on the weekend, to ever turn into an actual business I need to expand. I can't really go pursue land without the means of putting inputs into it, and I can't cashflow the inputs without the production from the land. ?????
It seems that I'm stuck with a gross around 30,000 and no hope of ever turning this into a real business. Always thought free enterprise worked off of the lending institutions, how do they make money if they don't ever lend any??

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02-16-2014 19:33:24

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 Re: line of credit in reply to dmiller, 02-16-2014 16:26:20  
Sometimes you got to go sideways what i do is low imput rotational grazing i get a guy to put up hay on shares so 1st crop part grazed rest baled on shares 2nd crop depending on year over half put on shares rest grazed third i get it all stockpile grass in fall early jump on spring hopefull in couple weeks start haying.
In the fall adjust the cattle to what i can feed over instead of buying machinery i buy cattle i do have small tractor and enough machinery to get the crop up purchaced over time and at the right price.but by buying cattle i get new machinery every year and my machinery instead of wearing out soon last longer. i can get more info if you like at a real intetesting meeting on grazing its highly competive

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02-16-2014 19:48:56

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 Re: line of credit in reply to farmerwithmutt, 02-16-2014 19:33:24  
I entirely agree with the efficiency of grazing units. One of the things I'm trying to expand into this year is putting 600lb calves on irrigated pasture for the summer and selling when the grass runs out/snow hits. Here in Montana no one will loan on cattle as their own collateral if you do not own your own brand. May have to go that far but was hoping to buy on contract or borrow on a bill of sale. Apparently they just don't do that here.
Over all though I really don't plan on becoming a cattleman, I just like the farming end of things too much, work the ground, scout the crop, harvesting etc.

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Nick m

02-15-2014 18:55:11

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
Greenstone fcs. I opened a small line of credit through them a few years ago. I had comparable equipment that you do for collateral and they didn't give me any trouble.

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02-15-2014 17:30:20

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
Garrett and Animal.
I talked with FCS over the phone and was basically told that they felt I had no collateral (old equipment). I rent where I live so have no equity other than the equipment.
I'll try the JD financial, they are one I hadn't thought of.

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Erik Ks Farmer

02-16-2014 17:36:19

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 Re: line of credit in reply to dmiller, 02-15-2014 17:30:20  
What type of bank are you dealing with? Put together a business plan and go to a farm lender. Your in Montana right? I googled it and found Montana Livestock AG Credit Inc. Call them and get an appt with a loan officer. 800-332-3405

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02-16-2014 19:22:16

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 Re: line of credit in reply to Erik Ks Farmer, 02-16-2014 17:36:19  
Right now I'm working on a loan app for the MT Dept of Ag rural assistance loans. I've already spoken with Wells Fargo, our local small town bank, Farm Credit Services and Stockman Bank. I'm finding that without land, house, or newer equipment they all just feel there is no equity to loan against.
I'll just have to keep praying, looking and trying not to get frustrated/bitter about it.

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02-15-2014 17:05:03

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
When I expanded (went from 10 acres to 60 nothing huge) I didnt want to have all my money tied up till harvest so I started checking around. I ended up with a small line of credit at the local co-op(southern states) thats due every month, and a 60K line of credit from JD Financial that that comes due dec31st. The Southern States line i use for little stuff, bar oil, chains, hitch pins etc. I use the JD line for fert, seed, and chemical. The interest rate for both is 3.5 or 3.75%. I like the JD deal because you dont have a monthly payment, just pay it off in DEC after you have your money. 60k was the cutoff for the simple application anything over that its pretty drawn out. This months Progressive Farmer has a Farm Credit add touting 2.99% operating loans. I have never dealt with Farm Credit but it might be worth checking out. One more thing, when I first started I had no idea that you could pre-pay your inputs. If you have this option i would highly recomend it , there's a tremendous savings to be had, and it hedges you from supply shortages. Not having your money tied up all summer in case you run into something you cant live without is just a added bonus.

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02-15-2014 16:17:06

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 Re: line of credit in reply to dmiller, 02-15-2014 16:04:00  
I have been told that Farm Service Credit is good and also look into your local FSA for small farm operating loans.

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