The Texas Farm Credit Difference: A Lender’s Perspective
Lenders do not all think alike, but most look at the same few things when a Texas dairy asks for money. Seeing the file through their eyes can help you prepare.
How a loan officer reads a dairy
Underwriters often group their questions around repayment ability, collateral, capital, conditions and character. For a dairy that translates into cash flow, assets, equity, milk and feed markets, and your record of paying people back. The Farm Credit network is built around agricultural lending, so its loan officers tend to be comfortable with those questions. Remember that each association sets its own policies, so what applies at one may not at another.
This is a general description, not a statement of any one association's policies. Do not take this as a prediction of any particular lender's decision, because each file is judged on its own facts.
Cash flow first
Collateral protects a lender, but cash flow repays the loan. Expect to explain how milk income covers feed, labor, other costs and debt service, and what happens when milk prices fall. Show a monthly projection and a version with lower prices. Ask your lender which measures they weigh most, such as debt service coverage, so you can check them yourself before you apply. If a lender asks for something you do not have, say so and offer a date by which you will provide it.
Use Dairy Market News and Dairy Margin Coverage to talk about price risk with real data. Consider building a simple summary page for your lender, with herd size, production, costs per hundredweight, debts and the plan for the loan.
Records tell the story
Clean records signal good management. Lenders look for tax returns that match financial statements, herd records, milk checks and a clear list of debts. If your records are scattered, spend a few weeks fixing them before you apply. Most loan officers will tell you what is missing from a file if you ask politely, so use that advice and resubmit.
Be honest about problems. A lender who learns about a late payment from you is more likely to work with you than one who finds out later.
- Tax returns and year-end statements.
- Current balance sheet and debt schedule.
- Monthly cash flow projections.
- Herd, production and milk check records.
What makes borrowers stand out
Borrowers who know their costs per hundredweight, can describe their risks and have a plan B are memorable. So are those who ask thoughtful questions about terms and covenants. Lenders appreciate customers who understand the loan. Keep copies of everything you hand over, since follow-up questions often refer back to earlier documents.
Ask what the association expects in reporting after closing, since annual updates and covenant checks are common.
Shopping around without burning bridges
It is reasonable to compare an association with a bank or credit union. Ask each for a written term sheet and compare them fairly. The Texas Department of Banking and FDIC provide information on banks, and the Farm Credit Administration regulates the Farm Credit System. A second opinion from a different lender can also help you see weaknesses in your plan that a single lender might not mention.
If you may qualify for FSA programs, ask about them too.
Questions to ask any lender in a first meeting
Ask how long decisions take, who will service the loan after closing and how often they will want financial updates. Ask what covenants or ratios they will require, and what happens if you miss one. Ask whether a loan can be restructured in a bad year and what that costs.
These questions are not rude. They show you take the loan seriously, and the answers help you compare more fairly. Write them down and keep them with your other documents. Ask neighbors about their experience with each lender, but remember that every borrower's situation differs.
Where to learn more
Texas A&M AgriLife Extension offers business planning help. This site is an education resource, independent of any lender including Farm Credit, and nothing here is financial, legal or tax advice. Talk to licensed professionals before you borrow.
For more reading, farm.FM has the dairy section and the economics section, plus a farm.FM story on how lenders think. See also the farm money guide and the dairy herd guide.
Sources and further reading
- Farm Credit: cooperative agricultural lending network
- Farm Credit Administration: regulator of the Farm Credit System
- FDIC: deposit insurance and bank information
- Texas Department of Banking: state bank regulator
- Dairy Margin Coverage: FSA Dairy Margin Coverage program
- USDA Dairy Market News: weekly dairy price reports
Ask locally: Ask a Texas AgriLife Extension agent to run a mock review of your numbers before you sit down with a lender.
General education only, not financial, legal or tax advice, and Texas Dairy Loan Guide is not a lender. Rates, terms and deadlines change, so confirm current details with the lender or agency.