Good records help smooth lending process

By Katie Pratt, UK Ag Communications

LEXINGTON, Ky., (March 2, 2010) – While the economic crisis has not affected agriculture as much as other industries, tighter government regulations could mean lenders will be asking grain crops growers for more income information when they apply for operating loans this year.

Specialists in the University of Kentucky College of Agriculture said good records allow farmers to easily produce additional documentation about their operation and can smooth the lending process.

"Lenders are looking to minimize their risks," said Jennifer Rogers, Kentucky Farm Business Management specialist for the Purchase Area. "The more pertinent information you can give them about your operation, the easier it's going to be for the lender to get you through the lending process."

Kentucky Farm Business Management specialists offer the state's commercial farmers a variety of financial resources and services. The program is jointly run by five area farm management groups and the college's Department of Agricultural Economics. Rogers, along with Pennyroyal Area Specialist Bart Peters, suggested several documents that could help farmers navigate through the process.

Helpful documents include a detailed balance sheet that provides a schedule of grain inventories and equipment values. Self-employed producers need three years of Schedule F tax forms. A marketing plan is also helpful.

Kentucky Farm Business Management specialists prepare other useful lending information for their member farmers including an accrual adjusted income statement and cash flow statement. The accrual adjusted income statement provides a better picture of a producer's income than tax information. A cash flow statement shows how a producer ended the year.

While lenders may ask producers for more concrete information about their operation this year, it doesn't necessarily mean they'll have a harder time obtaining credit.

"We've had two really good crop years, and for the most part, grain farmers are in really good financial condition," Peters said.

Some lenders may also ask growers to get or buy additional crop insurance. Purchasing crop insurance is a good way for producers to limit some of their risk, and while all lenders may not require it, it does look good when applying for a loan, said Cory Walters, UK agricultural economist.

Growers have many different options in crop insurance and can tailor a plan to meet their risk preferences. Premiums will depend on a producer's coverage level, insurance type (yield vs. revenue) and insured unit type (optional, basic, enterprise or whole farm) with a higher coverage level, revenue insurance and optional units equaling more expensive premiums.

The U.S. Department of Agriculture's Annual Crop Revenue Election (ACRE) program is another option that may be less expensive than crop insurance. ACRE provides a revenue-based safety net which protects producers against a combination of low yields and prices. It is different from the USDA's counter-cyclical payments that were only based on grain prices. ACRE revenue guarantees are determined annually based on the average U.S cash prices from the previous two years and the average state yields for a crop in the past five years minus the highest and lowest yielding years.

Producers can sign up for ACRE through their local Farm Service Agency. Signups are going on now through June 1.

Producers wanting more information on the Kentucky Farm Business Management program can visit the program's Web site at http://www.uky.edu/Ag/KFBM/. Those wanting more information on ACRE can visit the USDA's Farm Service Agency Web site at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landing or contact their local agency representative.