Whether your goal is to expand your business, provide a future on the farm for your children, or increase the equity in your home, borrowing to make capital improvements can be an impactful tool for most owners. Given the current market conditions, simply maintaining your farm may not be enough to sustain the operation or the land into the future.
We have seen an increase in land and home improvements over the last two years due to the pandemic and historically low interest rates. Some practical improvements we’ve seen pay off in our region recently include: renovating barns, roofing, and wells/water flow systems, expanding with more ground or structures, upgrading to meet certain guidelines and expansion into value-added commodities or agri-tourism, and adding additions onto rural homes to increase both square footage and market value.
Most lenders will follow these two ratios when making credit decisions for capital improvements:
- Debt to Income (DTI): the percentage of your gross monthly income that goes to paying your monthly debt payments
- Loan to Value (LTV): the relative difference between the loan amount and the current market value of a farm, land, or home
Along with the financial documentation and characteristics that lenders look for when considering your application for a loan (check out that information here), we will also want to see an updated business plan with the improvements you are looking to make clearly defined, including how they will benefit the farm or land in the future. If you’re considering renovating a structure or repairing fencing, how will that pay off in the long run? If you’re interested in expanding to purchase additional ground or add a building, what will it be used for and how will that continue to generate income?
At the end of the day, the improvement needs to make sense to the farm’s operation and create revenue to benefit the business. Our staff is happy to talk through capital improvement options with you to see how profitable certain decisions may be for your farm, land, or home.
In addition to offering capital improvement loans for your farm, land and home, Farm Credit can also partner with the Farm Service Agency (FSA) and other state programs to offer loan support for young, beginning, and small farmers and rural land and homeowners. Connect with a loan officer today at mafc.com or call 888.339.3334.
This article was written by Farm Credit Loan Officer, Jeanie Hamilton in our Martinsburg, WV office.