If you’re in the agriculture industry, you’re well aware that farming may be costly. The costs of beginning and sustaining a farm might be daunting, and you’ll almost certainly want finance – especially if you’re new to the field. An agriculture loan can help in this situation.
Agriculture loans are designed expressly for the industry, and there are a variety of methods to put the money to work getting your farm or ranch up and running or expanding your operations.
You’ll have a better chance of succeeding if you use that loan wisely.
Farm Loan Delinquencies and Bankruptcies Are Rising
While Chapter 12 family farm bankruptcies in the first quarter of 2020 were down to 284 filings, a decrease of 10 filings from the beginning quarter of 2019. At 580 filings Family farm bankruptcies are up 8% over the same time last year as per newly released information by the U.S. Courts. Bankruptcies in the 2nd quarter of 2019 fell to 115 filings. That’s nearly 50 fewer than the second quarter of 2019.
The lower percentage of filings in a time where farmers and ranchers are dealing with the impacts of COVID-19 can be attributed much to the financial aid offered through the Coronavirus Aid, Relief, and Economic Security Act, which includes direct payments to agricultural farmers by the Coronavirus Food Assistance Program, the availability of Paycheck Protection Program loans, temporary deferrals of payments and forbearance options for those who are borrowers. The fact that bankruptcy is now a virtual process has likely played a role in the decline.
While Chapter 12 family farm bankruptcies in the first quarter of 2020 were down to 284 filings. This was down 10 filings compared to the first half of the year, at 580 filings Family farm bankruptcies have risen 8percent higher than the year before as per newly released figures of the U.S. Courts. Additionally, Alabama bankruptcy laws during the 2nd quarter of 2019 dropped to 115 filings. That’s nearly 50 less than in the second quarter of the year.
The lower percentage of bankruptcy filings in a time where farmers and ranchers are dealing with the effects of COVID-19 can be attributed much to the financial support that is provided through the Coronavirus Aid, Relief, and Economic Security Act, which includes direct payments to farmers by way of the Coronavirus Food Assistance Program, the availability of Paycheck Protection Program loans, short-term deferrals for payments, and forbearance for those who are borrowers. The fact that bankruptcy is becoming virtual has likely has contributed to the decrease.
It would help if you determined how you’ll spend the money before applying for an agriculture loan. What resources will be most beneficial to you and your business? How much money do you require? These strategies must be in place before you apply for the loan, as they will ensure that you use the money wisely. So, how can you choose how to put your agriculture loan to good use? Here are some possibilities to think about:
Land Costs Covering
Agribusiness loans can be used to buy or rent land. The ins and outs of buying farmland can be complicated, and the amount of land you require will be determined by the type of farming you intend to conduct. To determine how much to borrow, you’ll need to figure out what kind of land you’ll need, how much of it you’ll need, and how much it’ll cost.
It’s worth noting that getting an agriculture loan to buy land without putting up collateral may be tough. Banks are aware that farming is a difficult business to thrive in, and they may require additional security or a loan cosigner to assure that they will be repaid.
Reconstruction Following Natural Disasters
The USDA’s Farm Service Agency (FSA) offers a program to assist farmers in recovering from natural catastrophes. Drought, flooding, tornadoes, fire, insect or disease infestations, and other dangers can wreak havoc on your revenue-generating ability. If this happens, you can take out an agriculture loan or an FSA loan to help cover the price of repairs, operating costs, and other expenses.
What are the requirements for growing crops? Dirt and seeds! If starting a farm could be that straightforward! You will, however, require equipment (as previously described), fertilizer, harvesting tools, and money to cover these and other expenditures associated with starting a cash crop.
Whether it’s a truckload of heritage tomatoes or a herd of Heifer cattle, your agriculture loan can help you get out on the right foot by allowing you to acquire required materials. Remember that you won’t be making any money until harvest, so calculate your loan amount accordingly — you might need to borrow enough to pay your operational expenses until you start making money.
Advertising & Marketing Campaigns
You’ll need to sell your products to the general public and vendors after you’re up and running.
PR and marketing costs may quickly pile up, from websites to logos to targeted ad campaigns.
If you’re not familiar with marketing strategies, a consultant can help you determine which channels will be most beneficial for you.
Trade journals, for example, might be a good way to reach out to business-to-business customers, whereas online marketing might be a better way to reach out to retail customers.
You can utilize the funds from your agribusiness loan to increase your visibility, but be sure you’re receiving the best value for your money.
Refinancing An Existing Debt
If you have outstanding agriculture loans, you may seek to refinance. This entails taking out a new, lower-interest loan and paying off the previous, higher-interest one with the proceeds.
You still owe money on the loan, but the lower interest payments are saving you money.
This is a move that makes sense only if the interest savings surpass the refinancing fees, so talk to your financial advisors and business team to be sure it’s right for you.
You can use an agricultural loan to expand your firm. You had to spend a lot of money on land, equipment, and other supplies when you initially began out. Expansion of your business necessitates a similar level of expenditure. Use your farm loan to purchase more land, greater facilities, more animals, more equipment, etc. You can even use the funds to hire extra employees – a larger enterprise would necessitate more hands!
Land Repairs and Improvements
To run efficiently, farms require continual care and maintenance. You might use an agricultural loan to pay for costly land or infrastructure upgrades or repairs. This type of capital improvement can assist increase the value of your farm, increase the efficiency of your business, and improve the quality of your products. You’ll also want to keep up with the latest developments in ethical farming and land care in today’s market of conscientious customers. This entails investing some money up front, but reaping large rewards in the long run. Just make sure you allocate some of your funds to publicizing your significant improvements!
Managing Operating Expenses
The cost of starting a business and getting it off the ground can be exorbitant at first.
You can utilize your farm loan to pay your employees, pay bills, and cover expenses until you begins generating cash flow. This won’t last forever; once you’ve gotten the hang of things, you’ll be able to cover your own expenses. However, a farm loan can help you get by in the meanwhile.
Surviving the Storm
Farming is a volatile industry. You never know how well your crops or cattle will do year to year.
Like any other business, you are at the mercy of your customers and buyers. The price of commodities is notoriously erratic.
Furthermore, some farming is done on a seasonal basis. You might need some extra cash during your quiet season to keep the lights on and the business running. You can safeguard yourself with an agribusiness loan during the ups and downs of your business. You can use it to pay operating expenses and the price of getting back on your feet. Agriculture loans are available to help you weather a lean season because it’s hard to plan for and protect yourself against every scenario.
Purchasing Farm Machinery
Without specialized equipment, it’s impossible to run a farm. Your business is just as good as your equipment, from tractors to irrigation systems to silos. High-quality, dependable equipment will last longer and make your job easier, but it will cost you a lot of money.
If you’re just getting started in the agriculture industry, you could underestimate the cost of specialist equipment. Before going overboard (or underboard), do your homework on the pricing and possibilities for the equipment you’ll need, and make sure it fits your business plan.
Calculate the total cost of each piece of equipment, including operating costs (such as petrol) as well as maintenance and repair expenditures (you can’t change a tractor tire with baling twine! ).
Consider speaking with others who have worked in the business to obtain their opinion on what kind of equipment you’ll need, how much it will cost, and how much it will cost to run and maintain.
If you’ve been in the industry for a while, you may already know what you require. You must, however, price each item of equipment you intend to purchase. You can also assess the equipment you already have; depending on the cost and estimated lifespan of the equipment, it may be cheaper to repair rather than replace some items. Once you know what kind of equipment you’ll need, calculate the quantity of the agriculture loan you’ll need and make sure you’ll be able to make the payments.
If you’re in the agricultural industry, you’re well aware that the expenditures of beginning a new farm or running an existing one can be substantial.
An agricultural loan is designed to assist farmers in either entering the world of farming or expanding their existing farm.
If you manage your money well, you’ll be well on your way to a wealthy farming future.