Buying farm land through finance can be a difficult process, especially if you have a tight budget to consider. Prospective farm purchasers have to jump through a number of hoops to get the land, but this can be made easier if you have prepared beforehand.
Being approved for agricultural finance does not have to entail a lengthy application process, and if you follow some simple tips you can get the funding you need for your dream plot of land.
Be certain of your credit history
One of the first elements of an application that a bank checks is the credit history of the applicant. You will need to be sure that your credit history and credit rating is positive with no incorrect information that could reflect negatively to the bank.
You can look into a free credit report in order to fully examine the report for any discrepancies, allowing you to timeously contact the relevant credit bureaus to request changes or corrections. If you do have a negative credit rating, then you will need to be able to provide an explanation as to why this is the case and what you are planning to do to rectify this issue.
Prepare your documents
As everyone knows, applying for finance through the bank requires a large amount of paperwork to wade through. Having the correct documents prepared ahead of time will help to ease this process. The information and documents you will need include the following:
- Your identification document
- Banking details and balance sheet information
- Contact information including registered address
- Details of the land you wish to finance
Once you have these documents in order, you can submit the online application form along with the documentation and await a reply from your chosen bank or financial institution.
Know what the bank will be looking at
Most banks want to know whether granting you a loan is a good investment for them. They will look at the production value of the farm, including factors such as the market value, before granting you a loan.
The bank will always determine whether or not your income exceeds your costs to the extent that you are able to repay the loan and cover household and operational expenses. Some banks may ask for collateral in order to grant the loan after looking at your income and expenses, or you could choose to offer collateral to ease the way to loan approval. The bank will only accept collateral that meets the following requirements:
- It must be identifiable and not perishable
- It must be in a saleable condition
- The bank must be able to estimate its market value
- It must be your own property and preferably not immovable
Knowing what the banks will be looking at will prepare you for the application process.
Draw up a business plan
If you are planning to use the land as part of an operational farm, then you will need to draw up a business plan. Your business plan should include pertinent information, including the details of the land and whether or not it is suitable for the crop or livestock you wish to farm. The use of your land will affect the decision of the bank, as will the location.
If you will be using equipment on your land and wish to include this in the loan amount, you will have to detail each piece of equipment and its potential use in your business plan. If you already have equipment that you are leasing, you will need to include these costs in your business plan so the bank can take into account any other monthly expenses that may affect your ability to repay the loan.
Provide a production plan
A production plan is different to a business plan in that it provides all the details on how your farm will operate and what products it will produce for the market. Remember that every farm is unique in terms of location, soil quality, labour requirements and so on, so be sure to include every detail about how production on your farm works.
Your production plan should include details such as land, buildings, equipment, supplies and processes including laws and regulations that influence your business. Because production is the core income provider for many farms, this will need to be a very detailed plan. A positive and well-researched plan will work in your favour when applying for a loan.
Applying for agricultural finance may seem daunting but if you are well prepared it can become a smoother experience. Providing your bank with the correct documents, a clear credit history and a well thought out business plan will help you to get the land you need for your purposes.