Purchasing land, the lending process and working with Capital Farm Credit
Charlie: So Clint, you’ve been associated with Capital Farm Credit for a long time now, when did you get started and how have you seen the lending process progress and change through the years?
Clint: I have 32 years in the ag lending business. The majority of that time has been devoted to the financing of farm and ranch real estate. The lending process certainly has changed through the years, from the regulatory reforms of the 1980’s all the way through to the more recent consumer credit regs that we have seen. At the same time, there have been a lot of enhancements made to the lending process to make it considerably more efficient and borrower friendly. When I look back through the years and consider all the changes, and even the challenges we’ve seen, I can say that agricultural property has been a proven investment, that can provide a rate return as well as appreciation over time. Our customers are very happy with that fact.
Charlie: That’s a great story. You must have known early on that you wanted to be a lender affiliated with sales of agriculture based properties. What led you to the Farm Credit System when you probably could have gone to work with a commercial bank in their Ag Department?
Clint: When I decided to go into lending, I knew that I wanted to be affiliated with a lender that specialized in ag lending as their primary business. Farm Credit is that kind of lender so the choice for me was easy. Helping people realize their dreams of farm and ranch real estate ownership has been my goal, and is what gives me tremendous job satisfaction.
Charlie: Tell me about your background and why you chose a career based on agriculture.
Clint: I’m a fifth generation Texan with a farming and ranching heritage. My earliest memories as a child were going with my dad to feed cows or check on irrigation water. And, I was pretty much raised on a tractor bailing hay or plowing, so when you come from that kind of background, you know that agriculture will be in your future. Early on it was easy for me to see how important the land is to people in agriculture. Later in life I was able to see how important the right kind of lender is to the success of an ag operaton. I knew that I wanted to be that kind of lender for agriculture.
Charlie: I have always been fascinated with the lending process, why don’t you tell me a little bit about the process of borrowing money for the purchase of land, livestock or equipment from Capital Farm Credit?
Clint: First I would say it’s most important to select a lender that understands agriculture and your specific type of operation. Sit down with that lender to discuss your goals and how you plan to achieve them. From there, the typical application process usually involves providing financial information, income history and a description of the collateral offered. On real estate loans, we will take care of the appraisal process and work directly with the title company and attorneys to insure a good closing. Customers not familiar with real estate transactions can sometimes be intimidated be the process, so we try to alleviate that concern by walking them through it step-by-step.
Charlie: How does Capital Farm Credit, and the farm credit system, compare with traditional lending, say from a commercial lending institution’s ag department?
Clint: The farm credit system was created 100 years ago to fill a need for a stable and dependable source of credit that specializes in agriculture. It is owned and controlled by its member borrowers, and the design of the system allows for profits to be returned to its customers, effectively reducing the cost of doing business. It’s a cooperative principal that has worked very well for a long time. And as you know, land is a long- term investment, so the farm credit system’s access to long-term capital markets allow us to structure debt out over a longer term, making the payments more affordable.
Charlie: I have sold quite a few properties to people who have borrowed money from Capital Farm Credit, as well as other farm credit lenders, over the years and many of them tell me about a dividend payment they receive each year. Explain to me how a lender can pay a dividend to a borrower.
Clint: That’s one of the advantages of borrowing from farm credit and one of the major principals of farm credit lending. Since we are owned by our customers, profits are returned to it’s owners. After the end of each year, the board of directors will make a determination as to how much of our net earnings can be paid back in cash to our borrowers, and how much in previous year’s earnings will be retired. After capital requirements are met, designated earnings are returned to the borrower. In the case of allocated equity retirements, many customers have seen retirement from these accounts continue well past the date their loan was paid in full.
Charlie: So basically what you’re telling me is that once they obtain a loan through Capital Farm Credit they become a stockholder in the company. That seems like a great partnership. This dividend or patronage payment back to the borrower ultimately reduces their annual interest rate.
Clint: It’s a great partnership when your lender is owned and controlled by it’s member-borrowers. The patronage payments received by the members have a definite impact in reducing the effective interest rates paid on loans.
Charlie: OK Clint, so say I have a really nice ranch listed for sale under the Caprock over here in Garza County, or Kent County, somewhere in your territory. I have the ranch listed at a price that I feel is reasonable for the area and I show the property to a gentleman that feels that this particular ranch may be a good fit for him and his family. Let’s just say they are what I may call a recreation ranch buyer, meaning they want to run a few cows, hunt deer and quail and build a weekend house that the family will enjoy. Once they show signs of seriously being interested, the first thing that I will ask is “Are you working with a lender, and if so, have you been pre-qualified?” Hopefully, they have done this, but in this scenario, let’s say they have not. “That’s ok” I would likely tell him “Quite a few people that we sell property to have not been pre-qualified. Are you considering any lender in particular?” If he answers no, I would jump at the chance to point him to the farm credit system, and give him the contact information for lenders in that particular territory, assuring him that these are all quality people I have worked with in the past.
Clint: We are happy to work with any buyer on pre-qualification if they feel that will give them an advantage in negotiating a deal, or just provide piece of mind knowing they have already been working with a lender.
Often times, the hardest part of the process to me seems to be finding the piece of land that is just right for them and fits the needs of the buyer. Once they have done that, we will try our best to make the process of financing and closing as smooth as possible.
Charlie: Next, let’s say this gentleman calls you at Capital Farm Credit and says “Hello Clint, I have been looking for a property and Charlie has a great place listed for sale that I really like. He told me I should call you and discuss rates and terms. Tell me about the services you offer and explain to me the steps involved in getting this done and loan approval.”
Clint: Purchase transactions are our “bread and butter” here at Capital Farm Credit. We will walk the customer through the different aspects of fixed and variable rates. We can offer a menu of many different loan products to choose from that they can tailor to fit their needs. We discuss the timing of income and make sure payments are structured to best fit their particular circumstances. Normally we set up a time to bring in information to us and sit down and complete a majority of the application paperwork, which can often be done in about 30 minutes. We can also handle customers by phone and email, and can complete the process from start to finish with the customer never actually coming in to the office. We will handle all aspects of the appraisal process and work directly with the title company all the way through to closing.
Charlie: That sounds fairly painless Clint, which is exactly what I would expect from you and the rest of the team at Capital Farm Credit.
This has been very interesting and I have learned a lot. I appreciate your taking the time to visit with me about this. I can’t wait to do another deal with you!
Clint: Your welcome Charlie, and we appreciate the opportunity to visit with you about what we do.
For more information on Capital Farm Credit, or to find a location near you, please visit their website! www.CapitalFarmCredit.com