Establishing solid relationships with your local banker and other lenders is crucial in today’s market, especially for those in the agricultural sector. Being on a first-name basis with key players such as the USDA FSA (Farm Services Agency) office representatives, local crop insurance agents, and the business loan officers at your local bank can significantly benefit your agribusiness endeavors.

While the ST Biologicals mentors aren’t financial experts, we understand that a business loan is part of almost every agribusiness plan. Banks require a detailed business plan to show you’re a reliable borrower and not a high credit risk. Just like you, your bank is a business, and they want to make sure you are a good partner.

What Does Your Ag Business Plan Look Like?

Bankers like detail. They like to see your past revenues and long-term projections. They like to see your cash-flow statement, your income statement, and a forecast of financial stability.

When seeking financing from a bank, it is important to paint a clear picture of your agribusiness financial history and future plans. Bankers typically look at past revenues to understand your company’s financial performance, stability, and growth trajectory. They use this to gauge your ability to generate consistent income and repay loans in a timely manner.

Your long-term projections are used to evaluate the sustainability and profitability of your ag business. Providing realistic and well-supported long-term projections can help instill confidence in bankers that your business has a solid strategy for success. Presenting a comprehensive view of your financial history and future plans is key to gaining the trust and support of bankers when seeking financial assistance.

Your Credit History Determines Your Credit Future

The importance of a healthy credit score to gain access to more borrowing is nothing groundbreaking. A good credit score can open doors to favorable interest rates, increased credit limits, and various financial privileges.

While a high credit score can offer financial flexibility and enable you to secure loans for major purchases, such as tractors or neighboring acreage, it also carries the risk of enabling you to take on excessive debt.

With easy access to credit comes the temptation to overspend and accumulate debt. Breaking free of this trap can be challenging. By being mindful of the potential pitfalls associated with a high credit score, you avoid the potential pitfalls of drowning in debt and instead harness the benefits of good credit to support your financial wellbeing.

In short, be absolutely sure you need that new piece of farm equipment and that your neighbor is selling you productive land at a fair price.

Now, About Your Loan Collateral

Bankers, much like farmers and ranchers, tend to be risk-averse. Banks typically require you to provide some form of collateral, such as land, equipment, or livestock, to secure the loan. This serves as a guarantee that you’ll repay the loan, reducing the bank’s risk exposure.

But we are living in unpredictable times. Risky weather conditions, such as droughts, floods, or natural disasters create challenges for farmers and ranchers in meeting loan obligations. Markets are volatile, and if your ag operation relies on exports, this may be a time to pivot.

To protect your farm and avoid foreclosure, it’s crucial for you to establish proactive risk management strategies. This may involve crop insurance, diversifying your income sources, and implementing regenerative farming practices that can withstand extreme weather events.

Regen Ag Is a Stable Choice in an Unpredictable Market

Conventional crop producers face a high degree of market fluctuation. There is usually a large gap between the market price of a commodity at seeding and at harvest. Enlisting the aid of an ag expert to do a market analysis of the prospective best land use gives you a picture of the broader agricultural landscape.

You have a competitive advantage for future-proofing your farm when you can see the broader picture. There are many ag models, and some are more suited to an unpredictable market. When you look outside the conventional parameters of your past ag practices you may find land uses and products with much higher profit margins.

Even if you have to invest in different agricultural implements, that cost could be offset. If you’ve done a good market analysis and identified strong target markets, you can implement strategic planning for a higher ROI.

While there may be initial investments required for implementing new practices and techniques, the long-term financial benefits can outweigh these costs. When you reduce the need for external inputs such as fertilizers and pesticides, you lower your production costs.

Improved soil health and biodiversity lead to increased resilience against extreme weather events and pest outbreaks. This reduces your risk overall. A cost-revenue spreadsheet for regenerative agriculture reflects these savings in input costs, potential increases in yield and quality, and any incentives or premiums.

By carefully analyzing the financial implications alongside the environmental and social benefits, you can make an informed decision about transitioning to a regenerative ag model. Getting your risk-averse lender on board with regenerative ag may take some educating on your part.

Educate Your Lender About Best Ag Practices

Bankers are generally conservative and risk-averse when it comes to money decisions and lending practices. Traditionally, yield has been their primary metric to gauge farm or ranch success. But with the high costs of inputs and the volatile market, there are other metrics a lender must consider to avoid undue risk.

Metrics such as soil health, biodiversity, and overall farm sustainability are important metrics. They can be quantified even though the holistic nature of regenerative means the whole is greater than the sum of the parts.

These are the metrics that are more conducive to farm profits in the foreseeable future. They need to be contextualized in scientific research, modern agricultural agronomy, and long-term profitability.

Soil health is crucial for sustaining crop productivity and resilience to climate change. Biodiversity plays a key role in enhancing natural pest control, pollination, and nutrient cycling, reducing the need for chemicals and increasing farm productivity in the long run. The links between ecosystem services and the financial viability of your ranch or farm make a compelling argument for using these metrics alongside yield to evaluate risk to the lending institution.

This proactive approach not only helps build a more resilient and sustainable farming system, it paves the way for greater collaboration between the financial sector and the ag community.

Our focus at ST Biologicals is to help farmers find ways to transition from conventional to regenerative farming and ranching. There isn’t any one answer, every ag operation is unique. But diversifying your operation decreases risk and creates an opportunity for your bank’s loan officer to lend you the money you need and still remain within their sphere of acceptable risk.

Looking for help in developing your business plan and converting your acres, a few at a time, to regenerative? Give the ST Biologicals mentors a call. We’re here to help you succeed. When soil speaks, we listen.