Need an Ag Loan? Better Know Your Numbers
Specialty crop markets are notoriously volatile, making the relationship between grower and ag lender especially important. This boom-or-bust environment makes good financial planning a must, according to Curt Covington, Senior Director of Institutional Business with AgAmerica Lending. It also puts a premium on growers building working capital into their balance sheets. Lakeland, FL-based AgAmerica provides a variety of loan products designed to meet the needs of farmers and ranchers across the nation.
“When a lender is looking at financing a specialty crop, working capital is by far the most important consideration,” Covington says. “That’s because these markets are so volatile. And they are different from commodity crops that have more ways to hedge risks. I can’t go to a board of trade and look for futures options for berries.”
While Covington says the right amount of working capital depends on the grower and what type of specialty crop he or she is growing, most ag lenders want to see at least 20% of the next season’s anticipated operating expenses.
“If a borrower needs $1 million, that borrower should be able to cover about $200,000 of that from working capital,” he says. “Some of these crops are more volatile than others, so that will affect the lender’s perspective on working capital.”
Covington adds having a second source of equity that can be turned liquid quickly — generally land — is important.
“Having a good amount of secondary (land) equity is important, but first and foremost, we focus on the proper amount of working capital. Having that 20% set aside can help growers get through those down years. Take advantage of the good seasons to build up working capital,” he says.
For more, continue reading at GrowingProduce.com.
Subscribe to eNewsletter
