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Farm Loan Preparation Checklist

A loan request goes better when the paperwork is ready, the plan makes sense and the numbers match the story. Preparing early is the best thing you can do.

Know what you are asking for and why

Before you call a lender, write down the purpose of the loan, the amount you think you need and how it will help the farm. A loan for a new parlor is different from a loan to cover operating costs or refinance debt. Lenders ask different questions for each.

Think about how the loan will be repaid. If you cannot explain the repayment source in plain words, work on that first.

Write the purpose as a short paragraph and read it aloud. If it sounds vague, tighten it up. A clear purpose makes the rest of the application easier to build.

Gather your financial records

Lenders usually want to see a history of the farm's finances. Collect tax returns, balance sheets, income statements, a current list of debts and a cash flow plan. Bring milk statements to show the revenue side.

Make sure the records agree with each other. Differences between documents raise questions, and it is far better to find and fix them before the meeting.

Organize everything in labeled folders, on paper or on a computer, so you can find any document quickly. Lenders notice when a borrower is organized, and it saves time for both sides.

• Recent tax returns
• Balance sheet listing assets and debts
• Income statement for the last year or more
• Cash flow plan for the coming year
• Milk statements and production records
• Insurance coverage summary

Prepare the farm profile

Write a short summary of the operation: size of herd, acres, buildings, labor, milk buyer and any special features. Include production and herd health information that shows how well the farm is managed.

If you are expanding or changing systems, describe the plan, the timeline and who will do the work. Mention advisors who will help, such as your veterinarian, nutritionist and engineer.

Include a candid look at strengths and weak spots. Lenders respect honesty, and naming a weakness along with your plan to address it is more convincing than ignoring it.

Understand what lenders look at

Lenders generally look at repayment ability, the farm's financial strength, collateral and the quality of management. They may ask about your cost of production, your debt load and how you would handle a low price period.

Ask the lender to explain how they evaluate the application. Public agencies such as the Farm Service Agency and the Farm Credit Administration publish general information about farm credit, and your extension office may offer help with preparing a plan.

If the loan is part of a larger plan, such as expansion or a change of milking system, be ready to show how milk volume, costs and labor are expected to change. Ask your advisors to help you stress test the numbers.

Practice the conversation

Rehearse a few questions: why this loan, why now, how will it be repaid, what happens if prices drop, who manages the work. Practicing helps you stay calm and clear.

Bring a spouse, partner or key family member to the meeting if they share the decision. Take notes and ask for any requests in writing.

It also helps to write down what you will say when asked about weak points, such as a past low price period or a high debt load. A calm, honest answer builds trust.

Compare your options

Different lenders offer different terms, and programs change. Ask about the type of loan, the repayment schedule, fees, collateral requirements and what happens if you cannot make a payment. Do not rely on a verbal summary alone.

Have your accountant or advisor review the terms before you sign. This is not a step to skip.

Compare more than the interest rate. Fees, prepayment rules, required reporting and collateral conditions can change the true cost and the flexibility of the loan.

Common mistakes

Common errors include arriving with incomplete records, asking for the wrong amount, underestimating costs, borrowing without a repayment plan and waiting until a crisis. Another is signing papers without reading them or understanding every condition.

If something is unclear, ask. A good lender wants you to understand the terms.

Another mistake is applying to only one lender without comparing. Even if you plan to stay with your current lender, learning what else is available strengthens your position and your understanding.

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