By Kyle Schieber, Assistant Vice President, Ag & Rural Lending in Maryville
What is an operating loan?
Row crop farmers have a large investment tied up in a growing crop that can’t be sold until harvested, like livestock operations that only sell animals once each year. An operating loan is a way to carry you through the growing season, allowing you time to get your crop in and sold or raise and feed out livestock to a specific weight.
Is an operating loan like a line of credit?
Yes, an operating loan is a line of credit. It allows the farmers or ranchers to have access to liquid capital to purchase inputs, feed, etc., when their investment in the marketable commodity is growing. Its intention is to be paid back to zero when the crop or livestock is sold.
What is a revolving line of credit (RLOC) and how is it used?
A revolving line of credit is the most common type of operating loan. Just like the name indicates, the balance revolves. Once you sell your grain or livestock, proceeds from that sale should be applied to your RLOC. Then if you have more expenses for the year to pay for, you have access to the principal that you paid down. With an RLOC, you only have to pay interest on the money that you have disbursed.
What type of farm expenses can I pay with my operating loan?
Any farm operating expense can be paid with an operating loan. For example, a livestock operation can purchase feed and vet supplies while a row crop operation may buy seed and chemicals.
What are the terms of an operating loan?
Loan terms vary based on each operation's need, this includes usage, operation size and risk. Most commonly, operating loans are for 12 months. There are some circumstances where an operating loan term can be up to 36 months. Interest is required to be paid annually. Each year financials are gathered and reviewed at the time of the loan renewal.
Is there a collateral requirement?
Yes, we have standards and regulations for operating loans. Most operating loans are secured by chattel (equipment, livestock, crop insurance, growing crop, etc.). However, in some instances they can be secured by real estate.
Is the interest rate fixed or variable?
FCS Financial offers a couple of different interest rate options. We can do a variable rate that changes monthly depending on the Federal Index Rate. Additionally, we offer a one-year fixed interest rate.
What is the renewal process like?
The renewal process is the perfect opportunity to sit down with your loan officer and make sure that your operation is on the right track. Your loan officer will need your last year’s taxes, an updated balance sheet and a projected cash flow for the upcoming year. Filling out the balance sheet every year is a good way to see progress made year over year. It makes it easy to see your progress going forward or, if you need to pause, and make a change in your operation to increase profits or efficiency.
How do I withdraw money from my operating loan?
At FCS Financial, you can access operating loan funds three ways.
- We can order you a draft book so that you can write checks from it just like you would a checking account.
- Download the FCS Financial mobile app on your Apple or Android device and log in to your My Access Plus (online banking) account. From there, you can transfer money to your local checking account.
- You can contact your local office and request funds be transferred electronically via an ACH.
A member-owner can use any number of these options. Each method requires some set up that can be handled at closing including security protocols. If you decide you no longer need your operating loan, let your loan officer know, and they can withdraw it.
How many disbursements can I make within each year?
There is no minimum or maximum on the number of disbursements made throughout the loan term. The funds are there when you need them.
How can I apply?
Get in touch with your local loan officer. They can guide you in the right direction and set you up quickly. To find a local FCS Financial loan officer, visit our Locations map on our website.
Kyle Schieber, NMLS #2212026, is an Assistant Vice President, Ag & Rural Lending, in the FCS Financial Maryville office. If you’re looking for an ag lender who understands the ups and downs of Missouri agriculture, reach out to an FCS Financial loan officer today.
