Post on 14-Jul-2020
transcript
Creating a Farm Loan PackageShannon DillExtension Educator – AGNRUniversity of Maryland Extension
ObjectivesWhy get a farm business loan
Budgeting
Loan requirements
Questions to ask
Why get a farm business loanStart 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
Financing OptionsPersonal 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
StepsStep 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
Personal Financehttp://articles.extension.org/personal_finance - get resources
Get your credit report
Clean up your credit
Update your household budget
How much are you borrowingReview needs versus wants
Watch Big Red Barn Syndrome
Create a purchasing schedule and plan
Business Planhttp://www.extension.umd.edu/mredc/business-modules/farm-business-planning-workbook
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
EXAM
PLE
Eggplant Exampleper pound
Variable Costs per unit $86.41/130 =
$0.66
Fixed Costs per unit
$0.08*
Break even price
$0.74
Break even output
69 lbs
Net income per unit
$85.02/130 = $0.65
* Other fixed costs that are not included.
Financial Plan
Balance Sheet Income Statement Cash Flow
Financial Plan
•Very important and necessary component of the business plan• Balance Sheet – Solvency• Income Statement – Profitability• Cash Flow – Liquidity• Pro Forma Statements
Projected Financial Statements•Lender, farm operation or other factors may require projected financial statements
•To do this review enterprise budgets and financial statements
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”
Balance SheetASSETS
Cash
Accounts receivable
Inventory
Automobiles
Machinery and equipment
Property
LIABILITIES
Accounts payable
Credit cards
Notes payable
Mortgages
LoansAutoOther
ASSETS – LIABILITIES = NET WORTH
BALANCE SHEET Name DateASSETS LIABILITIES AND NET WORTHCurrent Farm Assets Value Current Farm Liabilities ValueCash, checking, savings Accounts payable and accrued expensesPrepaid expenses & supplies FuelAccounts receivable Accrued interest - operatingCrops held for sale or feed Quantity Accrued interest - machinery
Accrued interest - mortgageCurrent farm notes payableOperating loan
Livestock held for sale Intermediate and long-term principal due within 12 months
Other current farm assets Other current farm LiabilitiesContingency income tax
Total current farm assets $0.00 Total current farm liabilities $0.00Intermediate Farm Assets Intermediate Farm LiabilitiesBreeding livestock
Machinery and Equipment
Other intermediate assets
Total intermediate assets $0.00 Total intermediate farm liabilities $0.00Long-term Farm Assets Long-term Farm Liabilities
Other long-term assetsTotal long-term farm assets - Total long-term farm liabilities - Total farm assets - Total farm liabilities - Nonfarm assets Nonfarm liabilitiesCarHousehold itemsCash value of life insuranceTotal nonfarm assets - Total nonfarm liabilities - Total assets $0.00 Total liabilities $0.00
Net Worth $0.00
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
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 TotalCash inflow1. Beginning cash balance 0 0 0 0 02. Crop sales 03. Livestock sales 04. Other farm income 05. Capital sales 06. Non-farm receipts 07. Total cash inflow (total 1 to 6) 0.00 0.00 0.00 0.00 0.00 0.00Cash outflow8. Chemicals 09. Custom hire 010. Feed purchased 011. Fertilizer and lime 012. Freight and trucking 013. Gasoline, fuel, and oil 014. Insurance 015. Labor hired 016. Rent or lease 017. Repairs and maintenance 018. Seeds and plants purchased 019. Supplies purchased 020. Taxes 021. Utilities 022. Vet., breeding, medicine 023. Other farm expenses 024. Capital purchases 025. Family living or withdrawals 026. Term loan payments 027 Total cash outflow (total 8 to 26) 0.00 0.00 0.00 0.00 0.00 0.00Cash flow summary28. Inflow minus outflow (lines 7-27) 0.00 0.00 0.00 0.00 0.00 0.0029. New borrowing: term30. New borrowing: credit line31. Credit line payments32. Ending cash balance (28+29+30-31) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Comments:
Questions to ask a lenderWhat 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
Gather DocumentsLoan application formPersonal informationBank statementsBusiness planProfit and loss statementsTax returnsAll loan obligations and statementsLegal documents - lease agreements, contracts, articles of incorporationProperty tax billsPersonal information – child support, divorce decrees, veteran certficates
Resourceshttp://www.extension.umd.edu/mredc/business-modules/financial-matters
http://www.extension.umd.edu/mredc/business-modules/farm-business-planning-workbook