Five things to consider when selecting financing for your hay operation.
This is a guest post by our sponsors at Texas Farm Credit.
As your operation grows, it may be time to partner with a financial institution to establish a line of credit for your agricultural operation. With thousands of lenders at your disposal, you may feel a bit overwhelmed as you begin your search for financing. You might hear unfamiliar terms, learn of various farm loan and credit types, become confused with numerous payback options, and just need a little guidance to feel confident before making a final decision. That’s why we’ve put together this list of five important factors to consider as you seek out financing for your haying operation.
Relationship
Ideally, your borrowing experience will be less like a transaction and more like the beginning of a relationship with a new business partner. You should expect a high level of personalized service and expertise.
You’ll want your new business partner to be professional, reliable, readily available, and eager to work with you. Someone who believes in and understands your operation, that is patient and willing to learn about your specific needs, discuss all your options, and guide you in the right direction.
Your lender should have a solid reputation in the community and able to provide references and testimonials upon request.
Rooted in Ag
While many banking institutions have financial experts on hand to lend you money, it’s important that they also have agricultural experience. There should be folks on staff that truly understand agriculture and maybe even have a small operation or grew up on a farm themselves. When you work with someone who has a knowledge base rooted in agriculture, you’re guaranteed to get the type of financing that will advance your personal goals and not just the goals of the bank.
You may also want to select a bank with a cooperative structure. When you join a co-op, you become an owner and stockholder of an association with a board of directors comprised of farmers, ranchers, and producers. When you are an owner of the bank you borrow from, alongside likeminded individuals, you’ll feel confident knowing that your best interest is at the core of the association’s mission. In addition, most cooperatives issue a cashback patronage dividend each year which would effectively lower your interest rate.
In short, we advise that you choose a company that isn’t all hat and no cattle.
Risk Management
The lender you select should also provide additional value above and beyond financing, such as risk management tools to protect your operation and financial investments.
As you are well aware, rainfall and commodity prices can make or break any operation. It’s important that your lender understands that there will be good times and bad and help you plan for the future by offering risk mitigation tools such as pasture rangeland and forage insurance. PRF is rainfall insurance to help offset reduced production due to less than average rainfall levels. This product can be a substantial benefit to a hay producer.
All certified insurance agents offer the exact same product, so you’ll want to select based on service. A full-service lender will have agents on staff that have tools to look at historical rainfall data and help you choose which intervals are best suited for your particular location, acreage, and method of operation. They should have a deep understanding of how the various insurance programs work, be able to layout your potential indemnities and premiums, utilize a structured approach rather than just an equal distribution across all insurable months, and explain how an insurance policy can fit into the success of your operation.
When your financial partner is able to offer you a one stop shop for financing and insurance, it can equate to saving you time and money.
Customization
There are no two agricultural ventures that are exactly alike, and your lender should understand that. They should be able to tailor a financing package that is unique to your specific operation. Your lender should get to know you and understand your operation, goals, and needs and then structure your loan for the production and marketing cycle of the commodity being financed. They should also offer equipment and land improvement loans for additions you may need to make in the future.
Your insurance coverage should be just as customized. Ask if they can structure your coverage level based on irrigated, non-irrigated, perennial pastures, annually planted forages, and other factors important to you. They should be happy to walk you through program dates, deadlines, documentation requirements, and how to mitigate your risk based upon your operation.
Your loan officer and insurance agent should be willing to build a comprehensive package just for you.
Integrity
Having a yes-man banker is fine when things are going well but can be detrimental during adverse times. It’s crucial to work with a lender that will be honest with you and set you up for success.
You’ll also want to ensure that your lender is backed by a reputable funding source and has the technology to securely handle all of your loan documents electronically. This convenience is invaluable and will allow you to spend more time in the field and less time on paperwork.
A quality financial partner will bring value to your operation by more than just lending you money. They should be a source of information and guidance, and because they understand your operation and goals, they’ll be there to celebrate when things go well and have your back when the going gets tough.
You’ll know you’ve found a lending institution that has your best interest in mind when they drive out to your place, shake your hand, speak your language, put your mind at ease, and welcome you to the family.