Crop insurance is a very general term that casts a wide net. This article will utilize revenue protection policy details for discussion and example purposes. Out of all the information available, what do you really need to know? How does ARM utilize crop insurance policies in lending? Crop insurance is a safety net for agricultural producers to ensure their investments in their crop revenues are protected, and with this protection comes a guarantee. ARM utilizes this guarantee value to derive a loan amount and secures the loan with the policy.

What is Crop Insurance? A Foundational Guide

Crop insurance is a risk management tool to help farmers mitigate risk on yield and revenue losses on the crops they produce. As mentioned, for this article the focus will be more on revenue protection policies, which has a yield and revenue component. The guarantee per acre that a RP policy extends is the approved yield multiplied by the set crop insurance price of the commodity being insured. When a drop in price occurs (revenue) or drop in yield occurs, a loss payment could be triggered, this will depend on the amount of the decrease in yield or price as well as the coverage level chosen by the insured.

How Crop Insurance Works

To dive into this a bit deeper – if an approved yield for corn is 200 bushels per acre, the set insurance for spring is $4, and the insured elects a coverage level of 75% (200 * $4 * 75%) the guarantee per acre is $600. So, if you multiply the actual yield achieved with harvest price, and it equals less than the $600 guarantee, a payment is triggered.

For example – (165 actual yield * $3.30 harvest price = $544.50)

($600 guarantee of policy – $544.50 = $55.50)

$55.50 payment per acre as indemnity

Why Crop Insurance is Essential for Farmers

Farming is an occupation wrought with risks. The two largest risks for any farm operation are ones that are completely out of their own control – weather and price fluctuations. This is why risk management tools are so important, crop insurance is a tool that can address both. The coverage level selected on a policy is a key consideration in the risk management discussion. If an insured were to select a 50% coverage level, it would take a catastrophic event to occur to trigger payment. Some select this level as they have a larger appetite for risk and opt to manage risk in a different manner. While others tend to have less of an appetite for risk and choose 75% or higher to have more peace of mind. Many liken crop insurance premiums to purchasing options, puts to be specific. Puts are purchased as protection to dropping prices, you hope they expire worthless and the market rallies to give opportunities, but you have them if you need them.

Connecting Crop Insurance with Agricultural Loans

As mentioned earlier, ARM derives their loan amount based upon the value of the crop insurance policy guarantee and utilizes the policy as collateral. However; it is not uncommon for other crop input lenders to require a certain level of crop insurance as a part of their underwriting requirements. Lenders want to see their customers demonstrate they are actively managing their risk and lowering the likelihood of a loss/inability of the farmer to pay back their loan.

ARM’s Flexible Lending with Crop Insurance

ARM relies heavily on the crop insurance policy and its guarantee value for underwriting purposes, this is because ARM utilizes all “crop-centric” collateral. Of course, ARM has the ability to look at utilizing hard collateral such as real estate and equipment as collateral to create custom structures, but at heart ARM bases its lending on the value of the crop itself, crop insurance, and government payments. Crop insurance allows ARM to look at the future of a farm by basing approvals on current year’s policies and not on historical financial performance (tax returns.) This aspect of ARM’s underwriting model allows for a faster approval timeframe.

How to Get Started with Crop Insurance

Never borrowed the money for your crop inputs from a “crop-centric” lender before? Here are a few ways to be prepared:

• Reach out to your ARM loan officer to get a list of all needed documentation ahead of application.
• Gather all information and return it at one time to eliminate the likelihood of multiple emails getting lost.
• Know what type of crop insurance policy you have and keep your crop insurance agents contact information handy.

ARM loan officers and crop insurance agents have a passion for helping first time borrowers navigate the lending process and helping them understand how their crop insurance policy is key to managing their risk as well as creating the collateral value for their loan.

Conclusion

Farming is a “risky business”. Weather and price uncertainty weighs heavy on farmers’ minds. The best way to obtain peace of mind is to take a proactive approach to risk management. Crop insurance is a tool to help farmers accomplish this risk mitigation. Lenders want to see farmers taking this proactive approach to prevent losses and lessen the likelihood of default on their loans. There is a policy and coverage level for the risk appetite of all in teh industry and supplemental policies as well for those looking for more custom coverages. Reach out to ARM today to speak to a knowledgeable agent that can assist in finding the right coverage for your risk appetite.

FAQs

• How does crop insurance help farmers?
  • Crop insurance protects farmers’ investment in the commodities they produce.
• Why is crop insurance essential for farmers seeking agricultural loans?
  • Many lenders require crop insurance, as they want to see farmers actively trying to mitigate losses/inability to repay their loans.
• What are the different types of crop insurance available?
  • Major 3 – Revenue Protection, Yield Protection, Whole Farm Revenue Protection, and others to include less common policies, supplemental policies, and county-based policies.
• How do I find a reliable crop insurance agent?
  • Start with ARM!
• What does crop insurance coverage typically include?
  • Depends on the type of policy. An agent would be able to articulate the best coverage options based on your specific needs.
• How does ARM use crop insurance in its lending process?
  • ARM derives its loan amount based on the value of the crop insurance guarantee of a policy.
•  What are the requirements to get started with crop insurance?
  • Reach out to an agent to get started. The process can vary based on location as well as other factors.
• Can crop insurance help during unexpected events like droughts?
  • Yes, drought as well as heat and general lack of rain are covered causes of loss.
• How do I know if crop insurance is right for my farm?
  • If you want to protect your investment in your growing crops, it is right for you.

Disclaimer: The information provided in this publication is for educational and informational purposes only and does not constitute legal, financial, tax, or securities or investment advice. Nothing herein is a commitment to lend or a guarantee of credit approval. All financing is subject to standard credit and collateral underwriting criteria and may not be available in all states or for all applicants. Terms, conditions, and restrictions apply. The purchase of crop insurance through ARM or its affiliates is not required as a condition of credit approval. Information contained in this publication is subject to change without notice.

Getting a tractor financed isn’t as easy as it used to be. Prices are still trending on the high side while commodity prices are still trending low. Multiple equipment payments can weigh heavily on a farm operation’s cash flow, this is why it is important to explore multiple avenues to getting your “tractor financed.” Financed can refer to a loan or a lease, while ARM doesn’t provide traditional tractor loans, we offer equipment leasing options through trusted partners, and we’re specialists in crop-based financing. Let’s discuss what to consider when you need to finance your next piece of equipment.

Traditional Tractor Financing Explained

The first thought of many is probably to call the bank or work with the dealership on a loan. This is probably considered the most “traditional route” of financing tractors for the farm community. Bank or dealership loans are not bad options, but they may not be the best for you. Eligibility may be an issue for some when it comes to down payment requirements or meeting financial standards. Also, farmers must consider how much of a payment can fit into their cash flow. A 5-year loan that requires 20% down, might not be in the cards for everyone. This is where leasing can help ease some burden.

Leasing a Tractor Through ARM’s Partners

Leasing can provide some flexibility to cash flow by lessening payments as well as add some possible tax advantages. Leases can be structured to mirror an equipment loan with a $1 buyout at the end if a farmer wishes to own the tractor at the end of the lease. Or if the farmer knows they will want to trade in a couple years they can set the lease up with a residual at the end to lessen the payment. This will allow them to build some equity into the tractor as they make the lease payments, then trade into what they want next without having to deal with depreciation recapture (operating leases). ARM works with multiple partners to get farmers’ equipment needs met.

Alternative Options: Crop Loans for Equipment Costs

At heart, ARM is a crop line of credit provider. ARM’s loan officers have a deep understanding of the needs associated with farm operations. By offering leasing options through our partners, ARM can meet all our farmers’ needs, whether it be financing a tractor or 1,500 acres of corn and soybeans. If you need an operating line as well, learn more about our crop financing solutions.

Special Scenarios

By working with multiple partners on equipment financing, ARM can cast a wide net to cover most farmers with varying levels of eligibility. Many ask if you can still get a lease with bad credit, I ask you to define “bad credit.” The minimum score is 645 and scores below can be considered, but may need a cosigner on the lease with them.

Why Choose ARM for Your Agricultural Needs?

ARM has a high level of expertise in the agriculture lending space. ARM can offer crop financing, farm real estate financing, equipment leasing, and crop insurance. It takes a lot of knowledge to manage a diverse array of products, and we have the team to do it! At ARM you can work with one loan officer and have access to all the products mentioned, talk about simplicity! Although ARM specializes in crop loans, all our various options give us the ability to create custom solutions for farmers. Need a tractor financed? Need a crop loan but have bad credit? No matter the problem, call ARM to discuss a possible solution.

Conclusion

In today’s farming economy, financing a tractor – or any major piece of equipment – requires more than just walking into a bank. With rising equipment costs and tighter cash flow, it’s critical to evaluate all your options. By connecting you with our trusted partners through our experienced Loan Officers, ARM is here to help you make the best decision for your operation. Let’s talk about your goals and find a solution that works for your farm – today, and for seasons to come.

FAQs

• Can I lease a tractor with bad credit?
  • Depends on how bad it is. A minimum of 645 is required, but below 645 can be considered by adding a cosigner.
• What’s the difference between a crop loan and equipment financing?
  • A crop loan is for inputs to plant and harvest a crop. Equipment financing is to acquire equipment needed to plant, harvest, or maintain your crops.
• What are the typical lease terms for tractors?
  • There is no typical term, there is an array of options to make flexible solutions possible.
• How does the application process work?
  • Depending on the product being applied for, either just an application and DL are required, or application, DL, balance sheet, and tax returns are required.
• How do I qualify for tractor leasing?
  • Reach out to ARM to discuss the options available and determine if you are a candidate?
• Are crop loans a good option for covering tractor costs?
  • No. Crop loans are for inputs into the crop and fixed costs associated with the crop, not capital expenditures. It is not prudent to purchase a multi-year asset with a 1-year crop loan.

Disclaimer: The information provided in this publication is for educational and informational purposes only and does not constitute legal, financial, tax, or securities or investment advice. Nothing herein is a commitment to lend or a guarantee of credit approval. All financing is subject to standard credit and collateral underwriting criteria and may not be available in all states or for all applicants. Terms, conditions, and restrictions apply. The purchase of crop insurance through ARM or its affiliates is not required as a condition of credit approval. Information contained in this publication is subject to change without notice.

In the current agricultural economic environment, it is no surprise there are many challenges pertaining to qualifying for farm operating loans and loans on farmland. Farmland values are holding strong in many areas as well as interest rates for farm loans, which makes it harder to obtain a farm operating loan if you do have the capital to purchase farmland or already own farmland to use as collateral. This is how ARM is different; you do not need to have land to use as collateral for your farm operating loan. ARM utilizes crops, crop insurance, and government payments to secure our lines to farmers.

Why Traditional Farm Loans Are Hard to Get

On top of the farmland as collateral requirement that many other lenders have, there are also strict requirements for credit scores, balance sheet metrics, and historical profitability. ARM views the farm loan requirements differently and utilizes data beyond balance sheets and tax returns to approve operating loans. Farmers just building their balance sheets and can’t quite meet the requirements of other lenders can look to ARM to offer a solution. ARM can offer solutions to farmers with low credit scores, higher debt to asset ratios, and those with no real estate collateral.

How ARM Helps Farmers Secure Operating Loans

In the past many would look to USDA/FSA to secure operating lines if they did not have the real estate collateral needed to secure their line of credit. This of course is still an option, but there are limits to how much a farm operation can borrow, and as a farmer builds their acreage (rented or purchased) their need for operating funds increases. Those farmers who build their business model on renting farmland in lieu of purchasing, have been underserved and limited in their ability to grow, by their access to operating funds being limited. ARM can grow with farmers and increase operating loan amounts year over year to line up with the number of acres farmed, even with no real estate collateral.

No Real Estate Collateral

ARM underwrites the loan using the crop, crop insurance, and government payments as the collateral.

Bad Credit-Friendly

ARM looks at your farm holistically and assigns operating loan amounts based on projected crop revenue, not just credit scores.

Steps to get a Farm Operating Loan with ARM

1. Assess Your Needs: Determine if you need an operating loan for daily expenses or a real estate loan for land purchase or improvements.
2. Check Eligibility: Contact ARM to verify qualification based on crops and insurance.
3. Explore Loan Options: ARM offers flexible terms for farm loan interest rates tailored to your situation.
4. Find a Lender: Use ARM’s location finder to connect with lenders.
5. Apply with Confidence: ARM’s process supports farmers rejected by traditional banks.
6. Submit application.

Tips for Farmers with Bad Credit

• Work with ARM to set a budget
• ARM can help get accurate revenue projections to underwrite farm operating lines
• Discuss with ARM options to consolidate debts to help with payment issues and timing

How Different Farm Loans Use Collateral

• Equipment Loans: Equipment and down payment
• Real Estate Loans: Real Estate and down payment
• ARM’s Crop-Based Operating Lines: Crop, Crop Insurance, and Government Payments

Conclusion

In tough economic environments such as the one we are currently in, more and more farmers are being declined for operating loans. Farmers who were declined due to requirements related to balance sheet metrics, tax return data, credit score, and no real estate collateral can find a new opportunity with ARM. Contact ARM to learn more about our flexible lender model and product suite of solutions.

FAQs About Farm Operating Loans

• Can I get a farm operating loan with bad credit?
  • Yes! ARM utilizes an underwriting process that is not reliant on a benchmark credit score.
• Do I need land to qualify for an ARM farm operating loan?
  • No, you do not have to own farmland to receive a farm operating loan with ARM.
• What kind of crops does ARM finance?
  • ARM finances a variety of crops that are insured by crop insurance. The majority of crops financed are those with revenue protection MPCI policies, but ARM can finance others. Reach out to the ARM location nearest you for more information on all crops financed in your area.

Disclaimer: The information provided in this publication is for educational and informational purposes only and does not constitute legal, financial, tax, or securities or investment advice. Nothing herein is a commitment to lend or a guarantee of credit approval. All financing is subject to standard credit and collateral underwriting criteria and may not be available in all states or for all applicants. Terms, conditions, and restrictions apply. The purchase of crop insurance through ARM or its affiliates is not required as a condition of credit approval. Information contained in this publication is subject to change without notice.