The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
If you’re about to open up your own farm or simply looking to expand, financing the land you’re going to purchase is often the biggest obstacle. Financing is often the go-to route for most farmers, as paying cash upfront is next to impossible for most people. However, before you sign your name on any contract, here are four tips to keep in mind when looking to finance a major land purchase.
Beyond the Bank Loan
Contrary to popular belief, you can definitely finance your purchase through other entities besides a bank. So, why would you want to skip a bank? Most farmers don’t like to work with banks due to their high-interest rates and lack of support. So, they turn to what is called a hard money lender. This type of lender (often a company or investor) provides similar loans but is much more flexible with payments and the type of collateral you insert into the loan agreement.
You Can Finance with the Land Owner
If the land you’re looking at comes from an individual owner rather than an organization, you may finance it through the owner. This means that you come to an agreement regarding payment and interest with the owner itself. The advantages of this are that you cut out the middle man, and your credit score won’t be too much of a factor. The disadvantage of going this route is the risk you place on yourself by entering into an agreement with a private citizen. After all, unlike a bank or company, they are not regulated by government agencies.
Not Certain About the Land, Why Not Lease?
If you are going to use the land temporarily or simply don’t know if certain crops are going to payout, you may want to go with a lease rather than an outright purchase of the land. In many cases, you can even have a contract that states that your lease has an option to purchase if you end up liking the property after a certain amount of months.
Get Partners Involved
No matter if it’s your wife or a business partner, two people buying land will be much easier to finance than one. This is because a bank’s confidence in two people being able to pay for the property rather than one is much higher and thus easier to get approved on.
Financing a major land purchase can be a lengthy and complicated process for any farmer. That is why it is highly recommended to explore the options and tips listed above before signing any type of contract.