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Financial help for beginning Minnesota farmers

Every farmer, when starting a farm business, has had to deal with how to finance his/her operation. Parental financing, the local bank or Farm Service Agency (FSA) financing and state government financing are all possible funding sources.

Possible funding sources

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Procedure when applying for a loan

1. Be well prepared

Whenever you approach a lender for money it is best to be well prepared. This is especially true if you are approaching a lender who does not know you or your business. To have the best chance of getting your loan, you should clearly and professionally show the lender where you stand financially and how the money will be used and repaid. You can greatly influence a lender psychologically if you are well prepared and present yourself and your case well.

2. What to prepare in advance

Your lender would like to see several statements. They include a net worth or financial statement, a projected cash flow, the last three year’s income tax returns and a complete business analysis if possible. In addition, your particular lender may have other specific requests for information such as a business plan including goals.

When applying for a loan to add a new enterprise or expand a current enterprise, be sure to have accurate cost data on assets you will be purchasing. Secure certified bids or good estimates and bring them with you.

3. Records

If you have good records, assembling all of the above information is much easier. If you have a set of good records, you may wish to briefly show them to your lender during your presentation to further convince him or her of your business skills.

What it takes to get a loan approved

Not all loans get approved. Following are some of the most common reasons loans do not get approved.

  • You are not able to provide a substantial part of the asset value from your own funds. Many lenders will have lending limit percentages on the market value of land, machinery, livestock and buildings. Lenders generally insist that you share a portion of the purchase and therefore share some of the risk.
  • If your cash flow projections show a poor repayment capacity, getting the loan will be difficult.
  • If you’re net worth is small and you have nothing to lose if you default on the loan, you will have a more difficult time getting the loan.
  • If you have a history of bad credit or late payment on previous loans, expect some difficulty in getting a new loan. Bankers will check out your credit reports. Protect your credit rating by paying off all loans (including credit cards) on time.
  • If your business profit projections show a low profit or a loss, your lender will also hesitate to give you the loan.

Where to get help understanding farm finances

  • U of M Southwestern MN Farm Business Management Association (SWMFBMA). They can be reached at 507-752-5081.
  • You can also purchase FINPACK financial planning software through the  U of M's Center for Farm Financial Management. The software will enable you to complete necessary financial forms.
  • Minnesota Department of Agriculture.
  • Your accountant is another person who can help you prepare the above forms.

Caution: This publication is offered as educational information. It does not offer legal advice. If you have questions on this information, contact an attorney.

Reviewed in 2017

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