Know your business, have a plan

Lacey Jarrell/For the Capital Press Mitch Stokes, manager of Northwest Farm Credit Services in Klamath Falls, Ore., says the best time to secure an operating loan is at the end of the production cycle, when farmers have a good picture of their year.

Long-term interest rates are still at historic lows but experts anticipate they’ll begin creeping up in the coming months.

According to Mitch Stokes, manager of Northwest Farm Credit Services in Klamath Falls, Ore., the agriculture economy generally moves counter-cyclical to the overall economy: When the economy is doing well, agriculture suffers a bit. He said if the economy continues gaining momentum, it could have a counter-cyclical effect on agriculture and lower commodity prices.

Stokes said if the value of what is produced is less than previous years, the ability to secure financing could be impacted, because commodities are a component of working capital. He explained that long-term low commodity prices could affect purchasers’ repayment capacity because there isn’t as much value in goods.

It’s not all bad news, though.

“We’re looking at rates today that we might not see again. It’s a great time to get a loan,” said Bob Boyle, regional vice president for Northwest Farm Credit Services in Salem, Ore.

Stokes said before attempting to secure financing, farmers and ranchers should have a fundamental understanding of their business and a solid business plan that positions them to be successful.

“When we’re working with farmers and ranchers seeking credit, our hope is that they’ve taken the time to really look at their finances — with a vision looking ahead over the next three to five years,” Boyle said.

According to Stokes, a primary concern for loan officers working with prospective buyers is that they haven’t handled what credit they do have responsibly.

“The advice I give first-time buyers is to make sure your personal consumer credit report is clean and tidy. That everything that’s on it is yours and that you’re making any debt payments that you have currently on time, every time,” he said.

Stokes also advises prospective buyers to have a reserve fund, whether it’s savings for a down payment or for a rainy day. He said real estate payments can be as low as 5 percent of the selling price, but having as much cash on hand as possible can make the buying experience smoother.

Prospective home or land buyers should also do their best to limit other debt, he added.

Boyle said farmers who borrow money for seasonal lines of credit have also enjoyed record-low interest rates, but that is also expected to change in the next year or so.

“Everything I’m picking up suggests the Fed will begin to bump those short-term rates sometime before the end of this year,” Boyle said.

The best time to secure operating loans is in fall, at the end of the production cycle, because farmers typically know what goods they have and what they are worth, according to Stokes.

“There are few question marks on his or her financial statement,” he said.

Stokes said Northwest Farm Credit Services typically responds to loan request within 30 days.

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