Structuring Farm and Agribusiness Loans: Key Terms, Mitigating Risks, and Role of the Farm Credit System and USDA

Description

Farm and agribusiness loans present unique challenges and opportunities. Like other industries, access to capital is critical for the farmer/producer. However, unlike other businesses that can rely on regular cashflow streams, income, and operating expenses do not always align on a farm or ranch. Thus, production and operating loans are key sources of capital for farmers to help supplement variable cash flow of the annual production cycle.

Production loans are short term and finance the production of a particular commodity. The loan is self-liquidating because it is repaid from the proceeds of the sale of the particular crop or livestock it was made to finance. Capital loans or operating loans are granted to farmers for non-production purposes, such as financing supplies, goods, machinery, and other equipment necessary for the farming operation.

Financing sources for both production and operating loans include commercial banks, insurance companies, equipment manufacturers, seed companies, cooperatives, processors, the USDA Farm Service Agency, and the FCS, which is the largest agricultural lender made up of a nationwide network of privately-owned banks and associations.

The structure of the farm or agribusiness loan should be supported by sufficient cash flow and from the expected source of repayment, and any borrower challenges and problems should be anticipated and included in the loan structure. To mitigate risk, loan covenants and other credit enhancements should also be included in the structure of the loan.

Listen as our authoritative panel of agribusiness practitioners guides you through best practices for documenting and renewing agricultural loans and how to mitigate risks. The panel will identify threshold considerations when making these loans and discuss issues unique to the underlying collateral, including livestock, crops, government payments, equipment, and land.