Agriculture – one of the most unique businesses, the results of which are determined not only by consistent work, but also by unpredictable weather conditions and global price fluctuations. Banks understand this, therefore they evaluate not only the asset pledged for the loan, but also the farmer’s ability to manage business and risk. “SME Bank” lending manager Marius Bačianskas revealed the main rules, which will help to secure financing from banks faster and more smoothly.
Quality financial accounting data and consistently prepared documents – a shorter path to reaching a credit decision. Before applying to the bank, have prepared the farm’s financial reports for the 3 past years: balance sheet, profit (loss) statement, and cash flow statement. Also have valid land lease agreements with clear terms, National Paying Agency certificates about planned payments, information about farm costs and income.
To evaluate a farm only according to managed assets – one of the financial literacy mistakes. The bank provides financing not only evaluating the farm’s managed land or owned machinery as collateral, but also the ability to pay installments from the cash flow created by the farm. Planning to get financing, evaluate if that flow will be enough for installments according to existing and newly assumed financial obligations. Add up all income and received payments and subtract operating expenses and payments according to owned obligations, for example, loan or leasing installments. The obtained difference is the cash flow, which shows the possibilities to return the credit. Calculating the cash flow, always leave a certain reserve, as a financial security cushion, to manage possible income and profitability fluctuations. If after all leasing and credit installments and operating expenses you are left with only a minimal amount, the slightest unforeseen expenses, repairs of machinery or assets, raw material price fluctuation can significantly affect the possibilities to pay installments to the bank.
The bank is convinced not by record harvest expectations, but by a farmer who knows exactly how much it costs him to grow one ton of production and at what price he will sell it. You must know the price limit, at which your farm starts to work profitably or in other words, at what price limit, if it fell, the farm would experience losses. Show that the bank’s financing allows to improve the farm’s financial position, for example, to reduce operating costs or increase income. For example, investment into new equipment is attractive to the bank when it directly reduces costs and increases productivity.
A modern farmer must know how to use additional tools, which reduce interest and the need for collateral. Ask the bank about European or national support guarantee mechanisms. Here help is provided by such institutions as ILTE in Lithuania or the European Investment Fund. They guarantee to the bank up to 80% of the financed sum. This means that if you borrow 100,000 Eur, you need to cover only 20,000 Eur with your own assets for the bank. This not only eases borrowing, but often allows to improve the bank’s financing commercial conditions, for example, interest or asset pledging conditions.
The lack of proper asset to pledge often is one of the more frequent obstacles to providing financing. Farms often offer to pledge used implements, however from the bank’s point of view – this is risky collateral. Machinery breaks and its value in the secondary market constantly decreases. The most valued collateral is agricultural purpose land. Farms having a portfolio of owned land always get cheaper and faster financing. Besides machinery or land, ILTE guarantees, pledging of stocks and receivables can be used.
Collaborate with the bank as with a financial advisor – be open about risks and ask the bank manager for financial advice. It is better to discuss the credit structure and business risks before signing the contract, than to search for solutions when they materialize.
We invite you to discuss farm financing possibilities with SME Bank representatives at the International Agricultural Exhibition “Ką pasėsi… 2026”! March 26–28, at the VDU Agriculture Academy.
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