Capital projects on the farm
August 29, 2022

Farmers know that from time to time, to maintain their successful edge, they must invest or reinvest in their businesses periodically. Investing allows them to keep their farm competitive while also increasing efficiency.

These types of investments usually fall into the category of capital projects. Capital projects are not usually investments that are made every year and instead usually take place every few years when advancements need to be made. Capital projects can be anything from equipment upgrades, adding grain bins or commodity sheds, building a new parlor or other buildings, or any number of improvements needed for the operation. Capital loans from DFA Financing, provided by Agri-Max Financial Services, are available to draw on for a full year with flexible repayment options.

When it comes to major capital projects, planning is key whether the project is short-term or long-term. There are many considerations to contemplate when you start making these plans. Our Loan Officers are here to give some recommendations and insight into issues they see when starting the loan application process for capital loans.

Lindsay Smith: “Whenever considering a capital project, keep a rule of thumb for getting at least three quotes/pricing for anything. Be sure to ask yourself “how will this capital project help improve my bottom line?” Think through, is it worth paying for the capital project in cash or consider financing and spreading the improvement out over a few years. Never deplete cash reserves and weigh your options for financing on different terms. I would recommend that you not have anyone run your credit if you’re not serious about the project so that you don’t take a hit on your credit score.”

Thomas Rogers: Thomas laid out some great points when discussing capital projects. “Be sure to hire a general contractor with dairy experience and then make sure that contractor is licensed, bonded and insured. It is important to have a construction contact drawn up and reviewed by an attorney working for you. When reviewing quotes, make sure to know if the project is time and material or cost-plus. The contactor should give a tentative schedule and timeline with deadlines so you have an idea of what will be happening on your property. The contract should also address what happens if deadlines are not met. Make sure it is clear how payments and advances will be handled, ie. what is the draw schedule? Next be sure to have a budget determined for any cost overruns and material pricing changes. Lastly, be sure you understand how disputes will be handled in worst case scenarios (mediation, arbitration and litigation)?   

Dean Smith: Dean stated that “when thinking about a capital project, planning is KEY. Make sure to ask yourself how the capital project fits with your farm’s long-term planning. Will this project create a need for other projects? Look at your farm’s cash flow and determine if there is enough to make this project feasible. Review the milk/base quota and how that could affect the project now and in the future. Working with a lender who has dairy experience can provide services that other lenders may not. Remember that capital projects will take time; there are approvals, appraisals, and possible title work. All this being said, planning will help make the whole project easier and smoother.”

At DFA Financing, we work specifically with our member-owners to help them with their capital projects. The experienced Loan Officers listed above have worked on many different projects and have the knowledge needed to help see you through the lending process. There are many questions surrounding capital projects, how to approach them, how to start the process, etc. If you have any questions or would like to talk to one of our loan officers, please feel free to give them a call.