Whether financing for a piece of equipment or getting a credit line to maintain cash flow, borrowing is essential to farming and ag business success. And when it comes to credit, success breeds success. The more you demonstrate your ability to pay off past loans promptly, the better chance you’ll have of obtaining other, perhaps larger, loans down the road.
Create a track record
As with any business or individual, your farm or agribusiness starts building a credit score from the moment you sign up for your first credit card or take out your first loan. Three major credit agencies — Experian, Equifax and TransUnion — rate your history of paying back loans.
So start making loan payments, including on credit card purchases, promptly every month. Late payments, collections, bankruptcies, repossessions and other troubles related to nonpayment lower your score and make it harder to get future loans. Get your current score from each of these agencies, and, if you’ve had problems in the past, repair your score over time with prompt bill payment.
Banks have a vested interest in seeing you prosper. They depend on reliable borrowers’ becoming repeat customers. Work with a specific bank or loan officer so they’ll be more comfortable about your ability to repay loans.
If you run into a financial problem that could affect your ability to repay, speak immediately with your banker, the American Banking Association advises. Solutions may arise that you might not think of alone. So don’t keep the problem to yourself, hoping it will go away.
Have a plan
Especially if you plan to expand into a new type of farming or new line for your agribusiness, prepare a business plan to show how you’ll turn a profit. A good idea alone won’t suffice, even if you have good relationships and a strong credit rating.
According to The Farmer’s Guide to Agricultural Credit, published by the Rural Advancement Foundation International, you may want to start the new venture on a smaller scale, without financing. This may enable you to demonstrate that you can generate reliable cash flow and help you obtain further credit. Lenders also will be interested in how much of your personal capital you are willing to invest in the effort.
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