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Changes Are Ahead for Farm Lending

According to Michael Boehlje, an agricultural economist at Purdue University, despite the fact that agriculture is not being hit as hard as other industry sectors from the economic slowdown, farmers and farm lenders will see some changes. Specifically, farmers having to jump through more hoops to borrow money and banks requiring more information.

"At a minimum, producers are going to have to do a better job of showing their lender what kind of profitability they've had and what kind of income they're generating," Boehlje said. "Secondly, it's quite possible that the lender is going to be asking for more detail on the inventory side of a producer's balance sheet."

Boehlje says increased oversight from lenders and unwillingness to loan as much as producers may want, are some of the likely changes to come.

"We're probably going to see capital expenditure loans are a little more difficult to obtain this next year than they might have been otherwise," Boehlje said. "I suspect lenders are going to be asking more questions about land purchases. Particularly, what kinds of financing will be needed to buy land. My sense is we already have seen some indication that lenders are being more conservative in their financing of land purchases. They are worried about the land prices. They might not be willing to finance 80% of the land purchase. They may only want to finance 50 or 60% of the land purchase. So if a producer wants to make that purchase, they're probably going to have to come up with more cash out of their own pocket."

Other possible changes could be less aggressive lending, increased restrictions and higher interst rates, however Boehlje says using sound money management and accounting practices should allow producers to weather the economic storm.

For more information about agricultural borrowing and lending, read Boehlje's papers, "The Financial Crisis: Implications for Farm Borrowers" and "Financial Stress in Agriculture: Implications for Lenders." Both are posted on the Purdue Extension Financial Crisis Information Web page, located at http://www.agecon.purdue.edu/news/financial_crisis.asp.