Creating a Farm Loan Package. Shannon Dill Extension Educator AGNR University of Maryland Extension

Transcription

1 Creating a Farm Loan Package Shannon Dill Extension Educator AGNR University of Maryland Extension

2 Objectives Why get a farm business loan Budgeting Loan requirements Questions to ask

3 Why get a farm business loan Start up costs bricks and mortar, licensing, equipment Equipment Expenses mechanization, transportation Expansion buildings, acquirements Inventory purchase of outside goods Business opportunity buy part of an existing business

4 Financing Options Personal Funds savings, cash, friends and family Private Banks loans, line of credit Credit Cards watch interest rates Crowdsourcing go fund me, angel investors USDA programs low interest loans SBA programs low interest loans Grants very few for start ups

5 Steps Step 1: Check your credit report and personal finances (annual credit report.com) Step 2: How much do you want to borrow wants, needs, short term, long term Step 3: Write, review or update your business plan Step 4: Get your financials in order enterprise budgets, balance sheet, cash flows (2) Step 5: Start talking to banks and explore lending options

6 Personal Finance - get resources Get your credit report Clean up your credit Update your household budget

7 How much are you borrowing Review needs versus wants Watch Big Red Barn Syndrome Create a purchasing schedule and plan

8 Business Plan Many lenders, investors, grants will want to see a business plan - Goals, Marketing, Financials, Human Resources - May need to include lease agreements, marketing contracts or other proof of sales

9 EXAMPLE

10 Eggplant Example per pound Variable Costs per unit $86.41/130 = $0.66 Fixed Costs per unit Break even price Break even output $0.08* $ lbs Net income per unit $85.02/130 = $0.65 * Other fixed costs that are not included.

11 Financial Plan Balance Sheet Income Statement Cash Flow

12 Financial Plan Very important and necessary component of the business plan Balance Sheet Solvency Income Statement Profitability Cash Flow Liquidity Pro Forma Statements

13 Projected Financial Statements Lender, farm operation or other factors may require projected financial statements To do this review enterprise budgets and financial statements

14 Balance Sheet Summarizes Assets, Liabilities (Debt), Net Worth Net Worth = Value of Assets Value of Liabilities Current (< 12 months), Intermediate (1-10 years) Long Term (>10 years), Non-farm A Balance Sheet is a snapshot of the business s and personal financial position

15 Balance Sheet ASSETS Cash Accounts receivable Inventory Automobiles Machinery and equipment Property LIABILITIES Accounts payable Credit cards Notes payable Mortgages Loans Auto Other ASSETS LIABILITIES = NET WORTH

16 BALANCE SHEET Name Date ASSETS LIABILITIES AND NET WORTH Current Farm Assets Value Current Farm Liabilities Value Cash, checking, savings Accounts payable and accrued expenses Prepaid expenses & supplies Fuel Accounts receivable Accrued interest - operating Crops held for sale or feed Quantity Accrued interest - machinery Accrued interest - mortgage Current farm notes payable Operating loan Livestock held for sale Intermediate and long-term principal due within 12 months Other current farm assets Other current farm Liabilities Contingency income tax Total current farm assets $0.00 Total current farm liabilities $0.00 Intermediate Farm Assets Intermediate Farm Liabilities Breeding livestock Machinery and Equipment Other intermediate assets Total intermediate assets $0.00 Total intermediate farm liabilities $0.00 Long-term Farm Assets Long-term Farm Liabilities Other long-term assets Total long-term farm assets - Total long-term farm liabilities - Total farm assets - Total farm liabilities - Nonfarm assets Nonfarm liabilities Car Household items Cash value of life insurance Total nonfarm assets - Total nonfarm liabilities - Total assets $0.00 Total liabilities $0.00 Net Worth $0.00

17 Cash Flow Summarizes all cash in-flows and out-flows for a period of time Checkbook Accounting In-Flows product sales, receipts, sale of capital assets, borrowed money Out-Flows production, capital expenditures, loan payments, living expenses Important because of seasonality. It will help you plan your income and expenses over a year. Does not take inventory or depreciation into account. Projected and Actual Cash Flow

18 Cash Flow Budget Name> Year 1 or Year 2 or Year 3 or Year 4 or Last year 1st quarter 2nd quarter 3rd quarter 4th quarter Total Cash inflow 1. Beginning cash balance Crop sales 0 3. Livestock sales 0 4. Other farm income 0 5. Capital sales 0 6. Non-farm receipts 0 7. Total cash inflow (total 1 to 6) Cash outflow 8. Chemicals 0 9. Custom hire Feed purchased Fertilizer and lime Freight and trucking Gasoline, fuel, and oil Insurance Labor hired Rent or lease Repairs and maintenance Seeds and plants purchased Supplies purchased Taxes Utilities Vet., breeding, medicine Other farm expenses Capital purchases Family living or withdrawals Term loan payments 0 27 Total cash outflow (total 8 to 26) Cash flow summary 28. Inflow minus outflow (lines 7-27) New borrowing: term 30. New borrowing: credit line 31. Credit line payments 32. Ending cash balance ( ) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Comments:

19 Questions to ask a lender What is the likelihood of approval What are the loan specifics terms, interest, total costs, prepayment Are there application fees Will you be look at my personal credit Who should be on the loan application Shop around to find terms and a bank that fits your needs

20 Gather Documents Loan application form Personal information Bank statements Business plan Profit and loss statements Tax returns All loan obligations and statements Legal documents - lease agreements, contracts, articles of incorporation Property tax bills Personal information child support, divorce decrees, veteran certficates

21 Resources