6. Federal Tax Returns
Provide complete copies of your federal tax returns with all of the schedules for at least three years. Some lenders may want four years, but usually three will be enough. If you have had a difficult year, it may be helpful to provide an additional year so that the lender can see how a typical year looks.
7. Production Records
Your lender is going to look at past income and expenses. Providing them with yield history, acres farmed, and livestock inventory numbers will supply them with a lot of answers to explain fluctuating income and expense numbers.
8. Operation Description
This is probably one of the most important things that you can provide your lender. This document should be an ongoing document that you add to or revise each year. This document should:
- Give your history and how you got started farming. Discuss your experience and ability to manage your operation.
- Discuss your succession plans.
- Present major changes in your operation and when they occurred. This would include transfers of ownership, buying or selling of land, medical, or family crisis that had an impact on your operation.
- Show how you make your income – whether it is from crops, livestock, or another source. Also indicate where you sell your crop and any measures you have taken to lock in prices.
- Express any niche that you possess that gives you advantages over your neighbors.
- Discuss your reputation for repaying your debts. If you have restructured debt, filed bankruptcy, have judgments against you, or have late payments explain the circumstances fully.
- Include who prepares your financials and production records.
- List any plans or goals for the next few years. This will help to make sure your loan is structured the right way to help achieve your goals.
- Disclose your trusted advisors and/or mentors.
You may look at this list and think, “My lender knows my operation so I don’t need to provide all that stuff,” but what happens if your loan officer leaves the bank? Someone new will need to get familiar with your account and they will be glad you were prepared. Your lender also has more than one loan to keep up with, so if he/she knows you always provide good information, they are more likely to move your loan to the top of the stack. Chances are your lender will still have some questions for you, but providing this information up front will save you a lot of time.
Kathy Daily is the Managing Director of First Financial Bank’s Farm and Ranch Division. Mrs. Daily has been an agricultural lender for over 25 years.
