Obtaining financing for your grain farm operation

Grain farming is big business. If you’re one of the many grain farmers who owns/rents land in the Midwest, you know just how big. In fact, the output of America’s farms contributed $166.9 billion toward the GDP in 2013. Forty years ago, 500 acres was considered to be a large farm. Now, you’d be hard-pressed to make a living off a farm twice that size. Many large-scale farming operations are more than 10,000 acres, and the days of four and six row corn planters are long gone. Now, it is common to see 24 and 36 row planters.

Like any scaling business, grain farms often need lines of credit to grow. That means, as with any business, farms need to have their records in order before approaching their lenders.

“It’s to the point now where a farm is no different than a tool and die shop, or any type of production-oriented business,” says Mark Lemke, a The Shealy Group adviser in the agriculture space. “Technology and pricing have farmers selling grain every month of the year, and often pricing next year’s crops.”

But there can be a lag time between when a sale is completed and when money from the sale arrives. In the meantime, it still costs money to operate the farm. “That’s when a line of credit can come in handy for
the farm operation,” Lemke says.

Working with the bank
Banks want as much information as possible to make informed decisions before they extend credit to a client. If you are looking for credit, be prepared by having as much informative data as possible before making the initial phone call.

“If it’s financial in nature and it has an impact on the operation of the farm, the bank needs to be told about it,” Lemke says. “They’ll want to see your balance sheet, a complete listing of assets and liabilities, including a debt service schedule and outstanding balances on both short- and long-term debt, including equipment and grain bin loans. And they could request even more than that.”

They will also need historic profit and loss statements. Banks will also want to have a strong grasp of the size and scale of your farming operation, including what you are planting, the number of acres being planted and projected yields.

“The million-dollar question is always, ‘What price will you sell at?’” Lemke says. “Corn prices right now are about a third of what they were two years ago. It’s the law of supply and demand, and inventory levels. Banks are going to want a clear picture regarding your anticipated revenue.”

How to track your data
With so many variables in play for farms seeking credit, it’s imperative you keep your records organized. Not only will it make the lending partner’s underwriting process easier, it also sends a clear message that you are treating your farm like the business it is. Spreadsheets such as Microsoft Excel can help you stay organized to a point. But as your operation grows and becomes more complex, you will reach a point —perhaps very quickly — where it makes sense to invest in specialized agriculture software that can help you keep track of daily operations and cash flow. There are a few good software systems specific to the agriculture space, but Lemke says some business software packages can be adapted for farming purposes. You should do research, talk to your accountant and shop around to find the software that most closely meets your needs.

“Bottom line, you need a good software package that can not only keep track of your historic financial data but also helps you do projections of future operations and cash flow,” Lemke says. “Having the ability to do projections gives an operation the ability to create a snapshot of future revenues, expenses, profitability and cash flow. These are things lenders are going to want to know.”

What to remember
Ultimately, it helps to think like a lender. If you were going to lend money to another business, what would you want to know? Remember, you are the primary resource for information about your farm, so work with potential lenders to give them what they need to put together a lending package that meets your needs.

“The more you can provide lenders, the better off you’ll be,” Lemke says. “That’s the main thing to remember. Give them more than you think they’ll need, and always ask if there’s anything else you can provide. The more you can show them about your financials, the happier they’ll be — even if they don’t end up using all of the information.”

For more information on obtaining financing for your grain farm, contact Mark at

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