How to take a dairy farming loan, and what you need to know.
Perhaps you have all the money you need to start your new farm business. If so, good luck. If not, then you will have to raise the money required. There are two types of financing available. These are equity and debt.
Using borrowed funds to finance the business is referred to as debt financing. These loans must be repaid, with interest, according to the contractual agreement made at the time of borrowing.
This represents a legal obligation on the business and, therefore, increases the risk. In borrowing money, you do not give up any ownership control of the business except the lender may insist on certain conditions for the loan.
When determining your borrowing, it is important to remember these rules:
1. Do not borrow more than you need:
This is an expensive and unnecessary charge on your business’s profitability;
2. Do not borrow less than you need:
This may simply get you in trouble if you must return to the lender for more funds under unfavorable conditions for the additional funds.
3. Match the term of the dairy loan with the life expectancy of the asset being purchased:
Anyone who has had to buy a new car before the loan on the last car has been paid off needs no further explanation of this rule.
4. Shop around for the best deal:
lending is a competitive business, so do not assume that all lenders will offer you the same loan deal.
Lender Relationships:
You will know many farmers and business people who only talk to their lenders when it is absolutely necessary, and tell the lender only what is specifically needed. This is a poor attitude for a long-term relationship.
In the same way that it is important to have a strong relationship with your partners and shareholders, you must cultivate an honest and informed relationship with your debt capital lender.
Why? The lender, who is most knowledgeable about you and your farm business, will be most supportive of you when it really counts – when times are tough; Talk regularly to your lender and let him or her know of developments immediately, even if the news is bad. The lender will fi nd out eventually anyway.
5Cs to determine whether you can get a loan:
You may find it useful to understand the considerations that most lenders use when determining your suitability for a business loan. These are sometimes referred to as the 5Cs of credit.
- Character: Are you the type of person who takes commitments seriously? What is your past experience with debt repayment? Are you honest? Do you have the knowledge and ability to run a successful business?
- Capacity: Is your business idea a sensible one? Have you investigated the proposed farm business adequately? Will it work?
- Capital: How much of your own money are you willing to invest in this farm business? Are there other partners or shareholders?
- Collateral: What is being offered to the lender to secure the loans in case the business is unsuccessful? Is it enough to mitigate the lender’s risk?
- Conditions: What is happening in this particular farming sector? Are prices rising? Are there any marketing concerns? what about any pending government policies to consider? What effect has new technology had in this sector? Are conditions right?
How do you choose the lender that’s right for you?
Two characteristics are important:
- Find someone who is knowledgeable about farming.
No matter how well-intentioned, a lender that spends 95 per cent of their time on new car loans will have diffi culty addressing the specifi c needs of farming; Most banks, credit unions, the Farm
Credit Corporation and provincial lenders have people dedicated to farm lending who have the background to properly assess farm loans;
2.Find someone who is willing to spend the time to develop a relationship with you and really get to know your operations.
Someone who knows you and your abilities and the ups and downs of your particular farm business, will be much more likely to support you in the difficult times that virtually all farmers face periodically
You can get a dairy farming loan from Stabic Bank