A January 2017 article entitled “Getting Ready for Farm Loan Renewal” by Tina Barrett in the University of Nebraska publication, Crop Watch, prompted me to write this addition to the ongoing Farm and Ranch Life columns about how current farm financial stress affects agricultural producers and what we can do to work our way through difficult times.
Barrett is the executive director of the Nebraska Farm Business Association. She grew up on a farm in central Nebraska.
Barrett’s article also appeared in her association newsletter, On Pasture. In a straight-forward fashion, she offered practical suggestions for dealing with stress associated with the farm loan renewal process.
As I wrote in previous columns, the persons I consulted suggested that about 10 percent of current farm borrowers would not be able to make required payments in 2017 of either an operating loan or a long-term investment loan, such as for land.
When a farm loan is denied, there are options to consider. A borrower’s bank is not the only one that can finance farming operations. Here are Barrett’s suggestions:
- Agricultural borrowers can organize and prepare applications to other banks and lenders.
- Producers may qualify for a loan from the USDA Farm Service Agency (FSA) if they are unable to obtain credit elsewhere.
- Sometimes the USDA FSA is considered the lender of last resort, but the FSA also makes general farm loans as well. Funding of these loans can change periodically and is set by the government so there may be first come-first served access to these loans. The FSA guide to farm loans is available at: www.fsa.usda.gov/Internet/FSA_File/fsa_br_01_web_booklet.pdf.
- Farmers can consider liquidating some assets. Barrett says, “It may seem like you can’t operate without ALL of your equipment, but it may be a good time to rent some of those larger assets such as a combine or have your harvest done by a custom harvester. If you sell some equipment so you can retire debt, you may be able to put yourself into a position where you can service the remaining debt while continuing to farm. You also may need to liquidate some land to keep going. Don’t forget to hold back some proceeds for income taxes.”
- “Bankruptcy may be a word that comes back into normal conversation,” indicates Barrett. “Our office is preparing to dust off old books and take classes to prepare for potential questions from farmers hoping to avoid or best navigate through the potential reality of bankruptcy. While avoiding bankruptcy will be ideal, the laws exist for a reason and may be a good tool for you to use so your operation can continue. Unfortunately, bankruptcy is complicated and the services of a good attorney and accountant will be necessary to complete the process.”
Seek expertise and engage a support network, advises Barrett. Regardless of the outcome, going through a stressful renewal is tough on everyone.
It’s not the intent of the lender or the agricultural producer to end a business through liquidation. She adds, “Using a management team is going to be important. It may seem silly to be paying professional fees when you are trying to cut costs, but many of these issues are very complex and require detailed expertise.”
“It is also stressful for your family,” observes Barrett. She recommends considering professional counseling to protect important relationships, marriages and behavioral health. “Talking about financial struggles is never fun, but keeping it to yourself could cause even bigger consequences.”
As a farmer and professional psychologist who has worked with distressed farmers during the Farm Crisis of the 1980s and thereafter, I wish to add a couple lessons I acquired along the way.
Several insurance companies have long histories of working beneficially with agricultural borrowers. Rather than endorsing any of these possible lenders, I suggest checking with a number of advisors that includes experienced farmers, bankers and attorneys for these options and preparing a well-planned proposal before contacting the company representatives.
The insurance corporations typically have loan officers who are skilled in agribusiness and who will conduct a thorough analysis of the farm operation, the household income, and the borrowers’ capacity to repay loans.
Can farmers apply to private lenders? Yes, there are some wealthy persons who occasionally back up loans for farmers and other businesses, for a fee.
It is especially important in these cases to obtain thorough background information and competent legal scrutiny of the loan provisions before signing the necessary documents. And yes again, there are some shady lenders looking to capitalize on distressed borrowers.
I know of a situation in which a stealthy private lender acquired farmland and other assets through deception in the 1980s. The arrangement was deemed legal in subsequent court proceedings.
I am grateful to Tina Barrett for her well thought-out advice. I also thank the farmer in central Iowa who pointed me toward the article by Barrett.