Solving the Puzzle of Poultry Farm Financing
Everyone always asks me what they need in order to borrow money. They also ask if they can make money and most of the time the answer is “It depends.”
Before deciding to purchase or expand, borrowers should consider what they currently have, what they want the money for and what their plan is for the future. A particular goal or need has brought them to the borrowing arena: they have a dream, or are looking to make a career change, or they want to build something for the future. At that point, we can begin to solve the financial puzzle, determining together what they can afford. And if they can’t afford it now, we’ll discuss what they need to do in order to afford it in the future. A lender will ask many questions. Some of these questions are:
- What is the purchase price or how much will the expansion cost?
- How many acres is it?
- Where is it located?
- How many poultry houses are you building or buying?
- What are the dimensions?
- Are any upgrades needed?
- Do you have building quotes?
- Will you have a down payment?
- Have you spoken to an integrator?
- Will you be selling your home?
- Do you have farming experience?
Every loan has two main parts. Determining the cash flow and the collateral for the loan. Anyone borrowing money needs to know whether or not they can expect to make money. If it will not make money, then they need to demonstrate they can make the payments on the loan.
What is the value of all collateral being pledged? The loan to appraised value will be determined from the loan amount divided by collateral pledged. Collateral can be what is being purchased or it can be another property being pledged. A down payment will lower the amount of the loan needed.
Looking at the ‘big picture’, financially speaking, what assets does the borrower have? What liabilities do they have? These answers will aid in filling out a financial statement that will give us their net worth. The financial statement sometimes is also called a balance sheet. This is a financial snapshot of what you have and what you owe on any given day.
Once we have answered these questions we can begin to run cash flows on the purchase or expansion. The combination of the loan amount and cash flow projections will determine the net income available after payments and expenses. This will be the expected salary earned from the operation. These two items will help determine if the new venture has the potential to be successful. There will still be more information needed, but this will put you on the right path for success. Most experienced lenders should be able to provide you an idea of how they would structure the loan based on what you are looking to achieve and an estimated cash flow based on your proposed expansion or farm purchase.
If you have questions about poultry financing or need more information, contact Becky Adams at [email protected] or (302) 280-6173.