What types of Ag Loans does Frontier Bank offer?
1. Business (Ag) or Personal (Ag) line of credit (LOC) to operate a farm.
2. Farm real estate to purchase crop-producing land.
3. Farm real estate to purchase an acreage or livestock facilities.
4. Ag machinery/equipment term loan
5. Bridge (Ag) loan
6. Farmer Mac loan
7. Iowa Ag Development Division loan
8. Participation and guarantee loans with Farm Service Agency (USDA) for beginning farmers
What is a Business or Personal Ag line of credit (LOC) loan?
The most popular loan used by most of our Ag customers is a line of credit (LOC). Most farms today need a line of credit to access capital for raising livestock or planting crops or both. Every 12 months, Frontier Bank loan officers schedule appointments with ag customers and review their personal and/or entity balance sheets to get a financial update on their respective operations. This is a time to review the previous year’s performance of their operation and discuss future cash flow needs. Typically, we review their past performance by analyzing their previous year’s tax return and update the projected cash flow by asking questions about changes to their operation.
Every year, Frontier Bank creates a spreadsheet that all ag loan officers use in determining the amount of credit available for both crops and livestock based on current markets. Line of credit (LOC) loans are underwritten by analyzing their respective debt service coverage ratio which compares the business's net operating income to its annual debt service. This is calculated by dividing the net operating income by the debt service which measures the ability to repay the debt. All operating lines of credit are secured by a 1st lien farm blanket security agreement signed by the borrower.
What are the two types of farm real estate loans?
The first type of farm real estate (farmland) loan is used to purchase land that is used for crop production or pastureland used for cow/calf operations. These loans typically have a 25 to 30-year amortization schedule, but the interest rate is only fixed for five years at a time. The interest rate adjusts every five years based on a predetermined index used at loan closing. Frontier Bank requires a 55%-60% loan to value for most farmland purchases. Some other factors may be considered depending on the financial strength of the borrower.
The second type of farm real estate (acreage/livestock building) loan is used to purchase an adjacent acreage (house) that has livestock buildings on the same property. These types of loans are structured the same as land real estate loans. Typically, these loans have 25-year amortization, with interest rates locked for a maximum of five years. All real estate-related loans are secured by a first-lien real estate mortgage attached to the property.
What is an ag equipment/machinery loan?
Equipment loans are used to finance the purchase of new or used equipment for agricultural farming operations. Equipment that has been used before can be financed for up to five years. New equipment can be financed for up to seven years. Equipment loans typically have fixed interest rates for the full five or seven years, depending on certain factors. Most all equipment loans are secured by a first lien farm blanket security agreement signed by the borrower and in certain situations, a purchase money security agreement is used to perfect the lien.
What is a bridge loan?
An agricultural bridge loan is a short-term loan used until a person or entity secures permanent financing. Generally, these loans are used for farmland, acreage, or livestock building purchases. These types of purchases generally take anywhere from 60-90 days to complete the necessary title work, complete a full appraisal or evaluation of the property, underwrite, and close the loan. In some instances, the closing date to purchase a property may only be 30-45 days from the date of the sale. In most cases, the bank will fill in the gap between the sale date and the closing date with a “bridge loan.” Bridge loans are typically secured with chattel assets, such as machinery, livestock, accounts receivable, or crop inventory.
What is a Farmer Mac Loan?
Farmer Mac (Federal Agricultural Mortgage Corporation) offers a secondary market loan option for all ag real estate refinances or purchases. This secondary market offers a long-term fixed rate option for ag borrowers which can be any of the following: 5,10,15,20,25 or 30-year amortization. Borrowers have the option to either choose between a full fixed rate term interest rate or variable interest rate terms. These loans allow Frontier Bank to offer full-service long-term fixed-rate options for any ag loan customer. Generally, the loan approval process takes as little as 12 hours or up to 14 days. The full underwriting process typically takes 45-60 days from the date of the purchase of farmland, acreage, or livestock building site.
What is an Iowa Ag Development Division Loan?
Iowa Ag Development Division loans are funded through the Iowa Finance Authority (IFA). Typically, these loans assist new or beginning farmers that are acquiring land, machinery, breeding livestock, or buildings. These loans usually have lower interest rates and are used in conjunction with regular financing with Frontier Bank.
There are a set of eligibility requirements which include the following: Net worth of no more than $833,000, sufficient education, training, or experience for the farm operations, owning no more than 30% of the county median acres and the applicant must be the owner/operator. The maximum loan amounts for 2023 are $616,100 for land, $250,000 for livestock facilities, and $62,500 for machinery. The application process takes six weeks, and the minimum fee amount is $300, or 1.5% of the loan amount.
The IADD and IFA boards will both review and grant final approval for each loan request. The IADD loan also offers tax credits to farmers who sell their existing assets to a young farmer. There are program maximums for tax credits and those can be found at www.iowafinance.com
What are the two different types of loans offered by Frontier Bank in conjunction with FSA?
Building a successful farm is a significant financial investment and can be challenging for beginning farmers who are not financially ready to access credit on their own from Frontier Bank. In these situations, Frontier Bank will partner with FSA (Farm Service Agency). One of the more popular credit programs available today is the FSA guarantee loan program. This type of loan allows Frontier Bank (lender) to borrow funds to beginning farmers who have little to no down payment, inadequate collateral, or repayment capacity concerns. These loans can be used to purchase farmland or livestock facilities. Generally, Frontier Bank requires a 90-95% full guarantee of the loan from FSA to provide loan funds to the young farmer, but it depends on the situation. FSA does charge a 1.5% fee of the guaranteed portion of the loan amount. Frontier Bank then services the loan and works directly with the borrower for the duration of the term. The maximum term for a guaranteed loan is 30 years and the max loan amount is $2,037,000.
The second most popular loan Frontier Bank offers with FSA is the 5-45-50 down payment loan program. This essentially means the borrower contributes 5% of the down payment, FSA finances 45% and Frontier Bank finances 50% of the purchase price or appraisal, whichever is less. This program is limited to beginning farmers and those who can’t get regular financing from a commercial lender. Eligibility requirements consist of less than 10 years of farm management experience and the farm size can’t be greater than 30% of the county median size farm. The maximum repayment term is 40 years, and the maximum loan amount is $600,000.
Please contact an Ag loan officer at Frontier Bank to learn more.