The ins and outs of agricultural finance

The ins and outs of Agricultural Finance Why is there just regular finance and then a more specific area of finance called agricultural finance? Is it really that much different? Many people who choose to get a finance degree in Flagstaff may be able to contribute to their farming communities if they understand the major differences between agricultural finance and regular business finance.

Some may think that Agricultural finance has to do just with the providing of loans to farmers. It actually entails several different aspects such as insurance, income distribution, farm finance management, and taxation. All of the dynamics of agricultural finance change as the national economic policies change as well.

Farms are run like small business and can therefore be capital intensive at the start. Even big farms are quiet different from big companies because so much depends on physical and financial performance.

Farms are heavily invested in assets and financial decision making.

While profits may occur a large majority of that goes back to the farm to take care of farming equipment, land expansion, livestock increase. These are some of the investment decisions farmers have to make. The way that farmers decide timing of financial investments is through accounting systems that provide them with enough data to maximize profits.

Financial Accounting Accounting is very important for farmers and those who don’t take it seriously fail in regards to Agricultural finance. The regular cash flow statement, balance sheet, and income statement are necessities. It is important to evaluate annual performance all around on the farm but it is also important to check the depreciation rates on machinery in order to decide when it is optimal to get new machinery.

Product Decision Making The information that a farmer collects should show what products to invest the most in. Profitability can be maximized by making market based decisions like this. It also allows farmers to problem solve and figure out what is making their revenue decrease or increase in the end.

Legalities With all of the documentation required for loans and borrowing, it is important to have an understanding of all of the legal conditions. Lenders want to be paid and borrowers want to feel the same security knowing that rates aren’t going to change on them and that they will have adequate time

to pay the loans off. Not only are there loans but there is also leasing which can be with land or equipment. This throws a few kinks in the system because there are completely different dynamics.

Taxes Farmers need to have an understanding of taxes in order to keep profits that they deserve. This is really just an understanding of gains and losses.

In order to understand the dynamics of agricultural finance you can get a degree in Flagstaff or you can experience firsthand like farmers. Ultimately you will see that the regulations and financial ecosystem is relative to the institutions that feed it such as government lending programs, banks, and other participants who are involved.