Farming in the Foothills
The exact loan application process and records required will depend on your lender and your individual situation. Factors affecting the process include the size of the loan, your farm history and personal credit, assets, and liabilities. You will need to research the interest rates, loan fees, payment terms, and loan specifications to find the loan that is the right fit for you.
Described below are some commonly expected requirements for all loans.
When you apply for a loan, you will need to be prepared. The first step is to contact the lender and set up an appointment. At this initial appointment, the loan officer will interview you about your farm and the purpose of the loan. This may be in person or over the phone. Either way, being professional and prepared will start out the process on the right foot.
It is smart to look at your credit report prior to applying for a loan. This allows you to research any negative marks beforehand. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.
Be prepared to answer these questions both during the initial interview and in written form on the loan application.
Purpose of Loan Why are you applying for a loan? How will it be used? How much money do you need?
Farm Business What type of operation do you have? What is the story/history of your farm? Is your farm a sole proprietorship, partnership, or corporation? What are your primary markets? What kind of record keeping system do you have? If you are a new farmer, what are your projections? What are your 5-10 year business goals?
Personal History How long have you been farming? What background and training do you have? What roles/titles do you (and your spouse) have on the farm? What other debts or loans do you have? What is your credit score?
Verification Materials Good record keeping is important when applying for a loan. Start organizing your data now so when you apply you will have all your ducks in a row.
• Three years of tax returns
• Three years financial records
• Three years production records
• Current financial statement and/or balance sheet
• Farm Operations Plan
• Projected cash flow budget reflecting production, income, expenses and loan repayment plan.
• Copies of written leases if you are leasing land or equipment
• Legal description of property owned or to be acquired and, if applicable, and leases, contracts, options and other agreements with regard to the property.
• Insurance coverage
• Registrations & Certifications
• Personal household information such as other income, expense for food, clothing, insurance, taxes, rent, medical costs, etc.
• Verification of non-farm income. Last few paystubs, pension plan or similar documentation
• Any debit or reoccurring payments such as child support, alimony payments, mortgage, credit card, and consumer loans.
If your financial records are not already organized, put them together before the meeting. Start by putting all your income and expenses into an understandable format. It does not need to be fancy. Bring all this information with you.
You can find out more detailed information about what documents are required directly from your lender.
Remember, the loan officer will be looking at you as a whole, not just at the farm. There are all kinds of loans for all kinds of farms. Keep records, be professional and have a business plan and you can be successful in financing your farm goals!
Farm Loan Workshop: http://ucanr.edu/sites/placernevadasmallfarms/?calitem=354096&g=22527
Farm Service Agency Loan Programs https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/index
California FarmLink Financing http://www.californiafarmlink.org/farm-financing
U.S. Small Business Administration https://www.sba.gov/loans-grants
Dixie Chan is a tax preparer licensed with the California Tax Education Council and has been preparing income taxes for over 25 years. Here are her tips for preparing your taxes this year.
• Take a few minutes to review your tax return from the previous tax year. This can work as a reminder of the income and expense items you reported earlier. It can jog your memory and work as a checklist for what you need to gather for this year's tax return.
• If you own a business, you should review your depreciation schedule from the prior year. Let your preparer know if any items being depreciated were sold, lost, or stolen during the year. Also include any depreciable items purchased recently like equipment or breeding livestock.
• Make sure you have all your tax documents before heading to see your tax preparer. These include your W-2 and 1099 forms, your mortgage and property tax statements, form for unemployment, earned interest, stock sales, retirement distributions, college tuition and books. Don't forget the 1095 form for your health insurance.
• An internet search can help you become more knowledgeable on tax issues specific to your operation prior to discussions with your preparer.
Join us on Wednesday, February 15th for the next Farmer-to-Farmer Breakfast with farm and ranch tax expert Dixie Chan! She will go over key tax concerns for producers such as hobby loss rules, depreciation, hiring your children, and possible income tax implications due to the anticipated repeal of Obamacare. Her husband Bryant Chan, a retired IRS investigator, will also talk about identity theft.
Bring your tax questions and enjoy a delicious breakfast with other local farmers at the Happy Apple Kitchen. Registration closes February 13th. Register at http://ucanr.edu/foothillfarmingtaxes
Video Link: https://www.facebook.com/FoothillFarming/
There is also a new Whole Farm Insurance Program offered by the Risk Management Agency. In the past many farm insurance programs have been directed at large scale or monocrop type farms. This new Whole Farm coverage is more compatible and beneficial for small or diverse farms. As an owner of a small, diverse farm, I am interested in looking into this program and learning more about how it works. What I have read so far makes me optimistic that it could be a good program for my risk management plan.
The University of California Cooperative Extension Placer-Nevada will be hosting two workshops for farmers and ranchers to learn about these programs. The first, on FSA Loans and Programs will be the topic at the next farmer-to-farmer breakfast, Wednesday, January 18, 2017, 8am-10am. Register here: http://ucanr.edu/survey/survey.cfm?surveynumber=19593
The second is about the new RMA Whole Farm Insurance Program and will be held Tuesday, February 24, 2017, 3:00pm – 6:00pm. Register here: http://ucanr.edu/survey/survey.cfm?surveynumber=19628
The intense rains are a reminder that risk management is an important part of growing a sustainable business. I look forward seeing you farmers and ranchers at these next two workshops. And in the meantime, I hope you are not washing away. Stay safe out there!
In order to evaluate accurately, you need information. In the busy season, you are too busy to set up a record keeping system. Now is the perfect time to decide what information you need and how you will gather it. As you evaluate and plan, think about what you recorded and what is missing. Make a list of records you want to keep and decide on techniques you will use to collect that data over the next season.
Here are some records that are essential in evaluating farm profitability and some ideas on how to keep them.
Expenses need to be categorized to evaluate the profitability of specific crops or enterprises. When setting up categories you will need to know if an expense is an overhead cost or a direct cost.
Overhead Costs are costs that occur roughly at the same level regardless of how much is produced (insurance, utilities, fuel, etc.).
Direct Costs are costs that change as units of production change (seed, fertilizer, packaging material, etc.).
To evaluate a specific crop, you will need to know all the costs associated with that crop. Accounting software such as QuickBooks is useful in tracking expenses. Decide this winter what your expense categories will be and what crops you want to watch/track closely.
Income should also be categorized. How will you know if potatoes are profitable unless you separate them out from your other crops? Market load lists and invoices are excellent tools for keeping track of income per crop. Require your employees (and yourself!) to keep accurate load lists.
Marketable Yield per bed/acre is an important record to keep. Your crop profitability can vary dramatically depending on yield. Decide how you will track yield. Where will you record this data?
Units Sold is different than income or yield and should also be tracked. Yield is what you produced, it may not all be sold. The actual units sold are key in evaluating demand for a product. Units sold can be tracked on your load lists and invoices.
Time/Labor is probably the most challenging record to keep. Especially owner time. Develop a strategy for how you will track your labor. Here are two ideas for tracking time. For employees, try the method used by TD Willey Farms. They use a weekly time card format where the employees write down the time they begin each new task. You can do this as an owner as well! A second idea suggested by a local farmer is to keep a planner, notebook, or electronic device and place it at the dinner table. You aren't allowed to eat until you have filled out what you did that day, including how long you spent doing it!
You can get labor estimates by sampling - where you time how long it takes to do a portion of a task. For example, how long does it take to prune one tree, then use that number to calculate how long it takes per row or acre. If you use time sampling, be sure you consider changing conditions over the season (e.g. the second or third harvest off a bed or tree). Consider time sampling several times during the season to get a more accurate average.
Remember who is doing the work. If you usually have employees move electric fencing, then you should time them doing it. If you time yourself, you may get a faster time but it won't help you in an honest evaluation of the cost of production.
Land or total acreage should be identified. Know how many trees per acre or bed feet per crop. For livestock, how much pasture and its carrying capacity. To make this simple and to help with crop planning, make a map of your fields. Unless you majored in cartography, these maps do not need to be works of art. A simple hand-drawn map works well. Use the map as a template and make copies before you fill in data that may change. On your copies, write planting dates, harvest & yield notes, amendments made, and any other records needed to evaluate your crops.
Enjoy the rainy day and the opportunity to build your business by developing a record keeping system. Don't forget to pat yourself on the back for how much you accomplished!
More on Record Keeping:
UCCE Farm Profitability Calculators: http://ucanr.edu/sites/placernevadasmallfarms/Farm_Business_Planning-_new_2/FBP_Farm_Economics/
Keeping Good Records, Cornell University: http://www.nebeginningfarmers.org/farmers/achieving-profitability/profitability-tutorial/managing-your-finances/
How to Finance a Small Farm:http://sfp.ucdavis.edu/pubs/Family_Farm_Series/Farmmanage/finance/
Harvesting Data, Foothill Farming: http://ucanr.edu/sites/placernevadasmallfarms/blog/?blogpost=21985&blogasset=24945
Farm Records, ATTRA: https://attra.ncat.org/intern_handbook/farm_records.html
Financial Records, ATTRA: https://attra.ncat.org/intern_handbook/financial.html
Picture a storybook farm: rows of vegetable crops, fruit trees, a flock of laying hens, some pigs wallowing or cows grazing, and a happy farmer with a spade, chasing stray rabbits from his crops. Sounds idyllic, doesn't it? As farmers and ranchers, we know that a “real” farm — like the ones we operate — generally looks nothing like the fantasy version that many people imagine. The work is hard, the days are long, and we don't wear picturesque overalls (well, most of us, anyway). But are we always realistic in our expectations for our own farms?
For many farmers, one of the most challenging aspects of owning and operating a farm or ranch is running it as a business. How many of us got into farming because we love business management, spreadsheets, and thinking about profitability? The very idea of “profit” can be off-putting; we want to provide wholesome food to our communities, or be good stewards of the land, or sustain family businesses and traditions. But in order to keep doing these things — to keep farming, for the long term — economic sustainability is key.
Remember that storybook farm? Fruit, vegetables, pigs, chickens — how much work will it take to keep this operation running? It may be tempting to think of a diverse farm as a profitable farm, but there are some good reasons to avoid this model.
• Increasing production of a smaller number of crops means lower production costs and greater efficiency. Say you are growing strawberries. You will need to buy or rent land; you will need a tractor, a soil test, irrigation infrastructure, farm insurance, and so on. These are fixed costs — you pay them no matter how much or how little you produce. By focusing on a few key crops, you can increase production and maximize the return on your fixed-cost investment in your farm operation.
• Narrowing your focus allows you to develop in-depth knowledge about your specific crops or livestock. It is very difficult to grow twenty things efficiently and well. But if you only grow three crops, you can really focus, learn, and improve your processes and techniques.
• Specializing in growing a few crops lets you take advantage of seasonal cycles and down time. Traditionally, most farms moved with the seasons: planting and growing in spring and summer, harvesting in the fall, resting in the winter. We all know the importance of rotating our crops and letting our soil rejuvenate under a good cover crop, but what about doing the same for ourselves as farmers and ranchers? Farming at full capacity year-round is a fast way to burn out; an “off” season allows both the farm and the farmer time to rest and regenerate.
• Running a specialized farm doesn't mean that you can't have a variety of products to offer. If you raise sheep, you could also sell sheepskins and wool, or offer breeding or grazing services. If you have a fruit orchard, you could extend the season with jams or dried fruit products. Think creatively about expanding your offerings, not your enterprises.
By eliminating less profitable crops and enterprises, you have more time, energy, and resources to focus on the things that are working best for you and your farm. A specialized operation will be more economically sustainable, more efficient, and more successful — and ultimately more rewarding in the long term.
Are you thinking specializing or scaling up your operation to increase profits? Apply for our Farm and Ranch Business Planning Course this winter!
To sign up, click here.
For another take on specialization as a key to successful farming (and inspiration for this article): In Defense Of Specialization, by Ulf Kintzel, Cornell Small Farms Program