What a lender actually wants in a farm loan package

A farm loan request is a decision about risk. The loan officer has to look at your operation on paper, often without ever walking your ground, and decide whether they can explain the loan to a credit committee. A good package makes that easy. A poor one makes them go back and ask questions, and that is where weeks disappear.

Requirements differ between lenders, and each one will tell you what it needs. This article describes what loan packages generally contain and how to present them. It is not lending or financial advice. Ask your lender for their checklist before you start.

Start with what you are asking for

The first page should say, in plain words, what you want. Include:

• The amount you are requesting.
• What the money is for: operating costs, equipment, land, livestock, building, refinancing or something else.
• The term you are hoping for.
• What you are offering as collateral.

Lenders read this first, and everything else is judged against it. If the purpose is vague, the rest of the package will feel vague. A short paragraph is enough.

The sections most packages include

1. A short description of the operation

Say what you farm, how many acres you own and rent, what you grow or raise, how long you have been doing it and who does the work. Describe how you sell: to an elevator, a packer, a sale barn, at markets or direct. Write a few paragraphs. Do not try to impress. A lender wants to understand the business.

2. Management background

Who runs the operation, and what is their experience? List the people involved, their roles and their years in agriculture. If a family member or employee carries part of the work, say so. Lenders are lending on people as much as on land.

3. Financial statements

Lenders usually want some combination of the following:

• A balance sheet: what you own and what you owe, as of a recent date. Include land, equipment, livestock, stored crops, cash and receivables, along with every loan, credit line and unpaid bill.
• An income and expense statement: for the last few years, showing revenue and costs by category.
• Tax returns: commonly the most recent few years, including all schedules.
• A cash flow projection: month-by-month or season-by-season expected income and expenses for the coming year, showing how the loan would be repaid.

If you do not have a clean balance sheet, build one. Lenders often provide a form. The numbers do not need to be fancy, but they do need to be consistent with each other and with your tax returns. If two documents tell different stories, expect questions.

4. A list of debts

List every debt in one place: lender, original amount, current balance, interest rate, payment amount, payment schedule, maturity date and what secures it. A debt schedule is one of the most useful pages in a package and one of the most commonly left out.

5. Collateral information

If you are offering land, equipment, livestock or crops as collateral, describe each item. For land, that may include legal descriptions, acreage and parcel numbers. For equipment, make, model, year and serial number. For livestock and crops, quantities and locations. Include proof of ownership where you have it, and note any existing liens.

6. Production and marketing history

Show what your ground and animals have actually produced in recent years, not what you hope for. Yields, calving or lambing percentages, and sale records help a lender see what is realistic. If you are projecting something higher than your history, explain why.

7. Insurance

Many lenders ask for proof of insurance on collateral and crops. Gather the declarations pages for your crop, property and liability coverage, and include them.

8. Land documents

Copies of leases, especially if rented ground makes up a large share of your operation. Lenders look at the term, rent and who the landlord is. A lease that ends next year is a concern for a loan that runs longer.

Common omissions

These are the gaps loan officers run into most often:

• No debt schedule. The lender has to build it themselves or ask you.
• Out-of-date balance sheet. One that is more than a few months old invites questions.
• No cash flow projection, or one that shows no explanation for its numbers.
• Missing pages from tax returns. Send complete returns, every schedule.
• Unsigned forms. Check signatures and dates before sending.
• Leases not included, or included without amendments.
• Inconsistent names and entities. If your land is in one name and the loan is in another, explain the relationship.
• No explanation for a bad year. A drought, a price drop or an illness is better explained by you than guessed at by them.

Presentation matters more than people think

A lender may handle many files. Yours should be easy to move through.

• Put the request and a short summary first.
• Follow with a table of contents or a simple list of what is included.
• Label every attachment clearly, with a file name that says what it is.
• Use the same numbers everywhere. If acreage is 640 on one page, it should not be 620 on another.
• Date everything.
• Keep narrative short and plain. Short paragraphs beat long ones.
• Send one organized package instead of a trickle of emails.

If you will be sending the package electronically, combine related documents into one file each and avoid photos of pages taken at an angle. Scan them flat.

A word on honesty

State what is true, including what is weak. Lenders find problems anyway, and an issue you raised and explained looks better than one they discovered. Never round numbers in your favor. Your signature goes on the financial statement.

A pre-submission checklist

1. Request page with amount, purpose, term and collateral.
2. Operation description and management background.
3. Current balance sheet.
4. Several years of income and expense information.
5. Complete tax returns.
6. Debt schedule.
7. Cash flow projection for the coming year.
8. Collateral list with proof of ownership.
9. Production and sales history.
10. Insurance declarations.
11. Leases.
12. Signed and dated forms, as your lender requires.

Where we fit in

Fieldwork Drafting prepares loan packages from the information you send: the narrative, the summaries and the organization, ready for you to review. You send a form, receive a fixed quote and get the finished documents by email. We do not give lending, financial, tax or legal advice, we do not recommend lenders or loan terms, and we do not submit anything for you. The decision to lend is the lender's, and we cannot promise any outcome.