Creating a Farm Loan PackageShannon DillExtension Educator – AGNRUniversity of Maryland Extension

ObjectivesWhy get a farm business loan

Budgeting

Loan requirements

Questions to ask

Why get a farm business loanStart up costs – bricks and mortar, licensing, equipment

Equipment Expenses – mechanization, transportation

Expansion – buildings, acquirements

Inventory – purchase of outside goods

Business opportunity – buy part of an existing business

Financing OptionsPersonal Funds – savings, cash, friends and family

Private Banks – loans, line of credit

Credit Cards – watch interest rates

Crowdsourcing – go fund me, angel investors

USDA programs – low interest loans

SBA programs – low interest loans

Grants – very few for start ups

StepsStep 1: Check your credit report and personal finances (annual credit report .com)

Step 2: How much do you want to borrow – wants, needs, short term, long term

Step 3: Write, review or update your business plan

Step 4: Get your financials in order – enterprise budgets, balance sheet, cash flows (2)

Step 5: Start talking to banks and explore lending options

Personal Financehttp://articles.extension.org/personal_finance - get resources

Get your credit report

Clean up your credit

Update your household budget

How much are you borrowingReview needs versus wants

Watch Big Red Barn Syndrome

Create a purchasing schedule and plan

Business Planhttp://www.extension.umd.edu/mredc/business-modules/farm-business-planning-workbook

Many lenders, investors, grants will want to see a business plan

- Goals, Marketing, Financials, Human Resources- May need to include lease agreements, marketing contracts or other proof of sales

EXAM

PLE

Eggplant Exampleper pound

Variable Costs per unit $86.41/130 =

$0.66

Fixed Costs per unit

$0.08*

Break even price

$0.74

Break even output

69 lbs

Net income per unit

$85.02/130 = $0.65

* Other fixed costs that are not included.

Financial Plan

Balance Sheet Income Statement Cash Flow

Financial Plan

•Very important and necessary component of the business plan• Balance Sheet – Solvency• Income Statement – Profitability• Cash Flow – Liquidity• Pro Forma Statements

Projected Financial Statements•Lender, farm operation or other factors may require projected financial statements

•To do this review enterprise budgets and financial statements

Balance Sheet•Summarizes Assets, Liabilities (Debt), Net Worth•Net Worth = Value of Assets – Value of Liabilities•Current (< 12 months), Intermediate (1-10 years) Long Term (>10 years), Non-farm•“A Balance Sheet is a snapshot of the business’s and personal financial position”

Balance SheetASSETS

Cash

Accounts receivable

Inventory

Automobiles

Machinery and equipment

Property

LIABILITIES

Accounts payable

Credit cards

Notes payable

Mortgages

LoansAutoOther

ASSETS – LIABILITIES = NET WORTH

BALANCE SHEET Name DateASSETS LIABILITIES AND NET WORTHCurrent Farm Assets Value Current Farm Liabilities ValueCash, checking, savings Accounts payable and accrued expensesPrepaid expenses & supplies FuelAccounts receivable Accrued interest - operatingCrops held for sale or feed Quantity Accrued interest - machinery

Accrued interest - mortgageCurrent farm notes payableOperating loan

Livestock held for sale Intermediate and long-term principal due within 12 months

Other current farm assets Other current farm LiabilitiesContingency income tax

Total current farm assets $0.00 Total current farm liabilities $0.00Intermediate Farm Assets Intermediate Farm LiabilitiesBreeding livestock

Machinery and Equipment

Other intermediate assets

Total intermediate assets $0.00 Total intermediate farm liabilities $0.00Long-term Farm Assets Long-term Farm Liabilities

Other long-term assetsTotal long-term farm assets - Total long-term farm liabilities - Total farm assets - Total farm liabilities - Nonfarm assets Nonfarm liabilitiesCarHousehold itemsCash value of life insuranceTotal nonfarm assets - Total nonfarm liabilities - Total assets $0.00 Total liabilities $0.00

Net Worth $0.00

Cash Flow•Summarizes all cash in-flows and out-flows for a period of time

•Checkbook Accounting• In-Flows – product sales, receipts, sale of capital assets,

borrowed money• Out-Flows – production, capital expenditures, loan payments,

living expenses

•Important because of seasonality. It will help you plan your income and expenses over a year.

•Does not take inventory or depreciation into account.

•Projected and Actual Cash Flow

Cash Flow Budget Name>Year 1 or Year 2 or Year 3 or Year 4 or

Last year 1st quarter 2nd quarter 3rd quarter 4th quarter TotalCash inflow1. Beginning cash balance 0 0 0 0 02. Crop sales 03. Livestock sales 04. Other farm income 05. Capital sales 06. Non-farm receipts 07. Total cash inflow (total 1 to 6) 0.00 0.00 0.00 0.00 0.00 0.00Cash outflow8. Chemicals 09. Custom hire 010. Feed purchased 011. Fertilizer and lime 012. Freight and trucking 013. Gasoline, fuel, and oil 014. Insurance 015. Labor hired 016. Rent or lease 017. Repairs and maintenance 018. Seeds and plants purchased 019. Supplies purchased 020. Taxes 021. Utilities 022. Vet., breeding, medicine 023. Other farm expenses 024. Capital purchases 025. Family living or withdrawals 026. Term loan payments 027 Total cash outflow (total 8 to 26) 0.00 0.00 0.00 0.00 0.00 0.00Cash flow summary28. Inflow minus outflow (lines 7-27) 0.00 0.00 0.00 0.00 0.00 0.0029. New borrowing: term30. New borrowing: credit line31. Credit line payments32. Ending cash balance (28+29+30-31) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Comments:

Questions to ask a lenderWhat is the likelihood of approval

What are the loan specifics – terms, interest, total costs, prepayment

Are there application fees

Will you be look at my personal credit

Who should be on the loan application

Shop around to find terms and a bank that fits your needs

Gather DocumentsLoan application formPersonal informationBank statementsBusiness planProfit and loss statementsTax returnsAll loan obligations and statementsLegal documents - lease agreements, contracts, articles of incorporationProperty tax billsPersonal information – child support, divorce decrees, veteran certficates

Resourceshttp://www.extension.umd.edu/mredc/business-modules/financial-matters

http://www.extension.umd.edu/mredc/business-modules/farm-business-planning-workbook