Farm Purchase and Real Estate Refinance

Source Capital and Consulting was engaged to develop a real estate acquisition plan for a Small farm adjacent to the main crop fields of an existing agricultural operation.

After meeting with the client it was obvious that the value of the purchases was larger than what an appraisal at discounted values would support.

SC&C then reviewed existing debt and found that there was also a problem with proper terming of existing real estate debt. The solution seemed simple in that the combination of the purchased land and the short term real estate debt allowed (although tight) for collateral coverage.

Historical taxes were used to develop a 3 year projection for the borrower. There were some accounting challenges that had to be researched so the bankers question could be answered before it was asked.

The cash flow was analyzed and any non farm incomes had to be included.

In choosing who to present this loan to, funders with loan term agricultural real estate were given preference. We had good motion from one lender who in the end wanted to wait 90 days. This was unacceptable as the real estate contract to purchase would not allow for a 90 day delay. As we neared this approval the seller was headed overseas. Because of SC&C communication with the seller a power of attorney was put in place to prevent any delays at close.

The loan was packaged using a USDA Guaranty and a Farmer Mac sale. The use of the above programs increased return to the servicing lender and allowed for a twenty five year fixed rate to the farm owner of sub 5%. The borrower could have chosen a fully fixed rate for twenty years if he had chosen.

At close the lender changed how the title was ordered which slowed the closing. SCC stayed on the job and detailed why the loan should close and that a second name on the title was not needed. SCC arranged an agreement between the county USDA office, the lender, and the borrower. All parties benefited from the agreement and the loan closed and the seller was paid.

The benefits to our client were exciting. The client acquired a critical piece of land to his operation. The client also enjoys a set fixed payment at a low interest rate on all his real estate.