35 Years of Agricultural Lending

I started loaning money to farmers over 35 years ago. We made short term farm loans, Agricultural land loans, Ag land purchase loans. We had several farm loan programs. All the paper work we needed for an operating farm loan was an application, A signed mortgage, and a checkbook. Agricultural land loans required a few more pieces paper but not many. All the paperwork I needed for regular farm operating loans was these three items. Compare that with what we need now. Farm loans and agricultural land loans require an application, financial statement, credit report, appraisal, three years of tax returns, W2s for last two years, bank statements, other statements on liquid assets, title company work, and the list goes on and on.  Agricultural banks are required to hire additional people due to all the paperwork.

Back in that day the borrower was the most important thing to agricultural Lending banks. His creditability, honesty, and ability, were the most important things. It seems like now the borrower doesn’t really mean much as long as you get all the paperwork completed and the answers to all the questions are correct or what they think the answers should be the loan gets approved. Little thought is given to the borrower and his desire and ability to repay the loan. This seems to be especially true in ag land purchase loans.



Why is this? Well the main reason is over the years a few dishonest borrowers and their attorneys found a way to get buy by not paying back farm loans because of some reason. So, then the lender had to add an additional piece of paperwork to close the loop, so no other borrower would use this loop to get by and not pay the loan back. Each time this happened another requirement was added, and a new piece of paperwork was developed, and borrower asked to sign and that gets to the place where we are now.  Sometimes the paperwork we need for most farm loan programs overwhelms the borrower and I can sure see why.  Agricultural banks seem to be getting fewer and fewer.

I would like someone to develop a document that the borrower could sign that would hold up in court whereby the borrower agrees to pay the loan back and forfeits all means used to not pay.

Importance of Farm and Agricultural Land Loans for Farmers

In over thirty years of financing agricultural I have originated farm loans, agricultural land loans, Ag Land purchase loans, and dealt with a host of Farm Loan Programs. Some of which have been government programs and others programs we have established in our bank. In the banks I was affiliated with the farm loan programs were the most popular.

Most of the long term agricultural land loans before the late 1980s were originated by the Federal Land Bank and some Insurance companies. Then during the farm crisis of the late 80s Farmer Mac was started. The purpose was to be able to poos and secure ag land purchase loans and sell just as Fanny May was doing with home loans. Now the Federal Land Bank is known as Farm Credit Services and is making long term agricultural land loans, along with Farmer Mac, and some insurance companies.

Interest rates tend to be usually 2 or maybe more points higher for these commercial farm loan programs. The rates would be on a par with other commercial long-term loans. Long term loans would be defined as loans with an amortization of 25 years or more.



The Agricultural Banks would be primarily in the rural areas and tend to be smaller banks. However, with the amount of money needed by these larger farming operations these small banks sometimes must rely on larger city banks to assist them with the farm loan programs.

Financing farmers and agricultural enterprises is challenging for agricultural banks. Getting adequate security on farm land loans is not difficult as you can take a mortgage on the land and be secure.

However, getting a secure position while financing livestock, machinery, and growing crops is more difficult. Unlike automobiles large pieces of equipment do not require titles that you can hold. You only must rely on serial numbers posted on the equipment etc.

Financing agricultural with various forms of agricultural land loans, farm loans, and ag purchase loans has been challenging over the past 30 years but enjoyable.