Expanding farm businesses or transitioning farm businesses to other family members often revolves around whether additional farm ground can be purchased or rented. For many farmers, owning ground is often preferred simply for the doors it opens — better financing and better cash flow. But for many farm businesses today, purchasing more ground simply isn’t an option.
Since land is a finite resource and many landowners choose to hold on to land for rental income, farm businesses today often expand or transition by adding additional acres through rental agreements.
But getting a leg up on cash rent agreements can be tough. If you’re looking to add more acreage to your operation remember to let your current rental agreements and landlords speak for you: Talk up your best management practices, any new technology you’re using, soil improvements and how you keep good working relationships with your current landlords.
As you speak with potential landlords, remember that no two pieces of ground are the same and rates shouldn’t be, either. Know the current rental rates, what you’re willing to spend and back those numbers up with hard evidence. Lay out your goals and how you can help your potential landlords achieve theirs.
Look for a Loan Made for the Cash Rent Climate
The work doesn’t stop once you’ve sealed the deal with your new landlord. Scaling an operation by adding rental ground rather than owned acreage can create problems when it comes to cash flow for the rest of the farm expenses. After all, most bankers or agricultural lenders prefer to lend money based on hard assets rather than rented ground, making it more difficult to obtain an operating loan, especially if the number of rented acres overtakes the number of owned acres.
Not to mention, more ground also means more expenses, which can put your lender in a tough place. After all, some lenders just don’t have the capacity to finance large agricultural loans - especially if you’re looking for an even larger amount to grow your farm business.
This unwillingness or inability to extend operating capital has led to an expanding lending gap for some of the country’s largest, most productive farms.
If you’re part of the 75% of very large farms - more than 2,000 acres - or the 87% of large farms - farms with between 1,000 and 1,999 acres - that rent land1, there's a better way to borrow the cash you need.
FarmOp Capital’s production-based loans help close the lending gap by offering operating loans based on your ability to produce a crop, not the land you own. Placing more value on your cropping plans, grain marketing plans and crop insurance helps ensure you’re in the right place to grow your business, even without the hard assets most lenders look for.
See how a FarmOp Capital operating loan can help you achieve your goals. Click here to receive a personalized Quick Quote from FarmOp Capital.
1 Farms and Land in Farms 2019 Summary, USDA National Agricultural Statistics Service