The Farm Credit Revolving Line of Credit

Designed for farmers and agribusinesses, this revolving line of credit
is a tax liability and cash flow solution.

by Tarrell Bennett, Chief Lending Officer, Southwest Georgia Farm Credit | Nov 19, 2017

Many people view the end of the year as a time for celebration and family. But farmers often think of it as the time to meet with their accountant, go over end-of-the-year financials and strategize to reduce one of the biggest payables for the coming year: the one due to Uncle Sam in April.

That doesn’t seem like much to celebrate . . . unless you’ve learned how to zero out your tax liability through a Revolving Line of Credit.

What do we mean? Southwest Georgia Farm Credit Relationship Manager Tarrell Bennett explains.

“Say we set up a $1 million Revolving Line of Credit for a farmer. In December, if he thinks he’s going to have tax consequences, he can pre-pay his expenses—fertilizer, seed, chemicals—and take the deduction this year,” Bennett said. He has just zeroed out his tax liability.

And it gets better. In the next calendar year, when he receives payment on inventory, he can pay down the loan amount, which frees up the balance available for other cash-flow needs, like rent for the next year’s crop. He can keep drawing against that $1 million until it’s maxed out. Then at harvest time, he can pay back the loan through monies received when commodities are sold.

Designed for the farmer and farm business

“The Revolving Line of Credit fits a farming operation,” Bennett says. Unlike the traditional operating loan or non-revolving line of credit, “it’s not just all out and all in – it’s constantly out and in.” Besides easing your cash flow throughout the year, a Revolving Line of Credit offers you more opportunities to take advantage of strategies like reducing your tax liability. And you only pay interest on the outstanding balance.

Unlike commercial banks, Farm Credit caters to the unique needs of a farmer; we understand that their operation doesn’t always conform to a one-size-fits-all financial product. The difference is also noticeable in the loan application process, Bennett says. “Most underwriters and commercial banking institutions don’t recognize that a farmer can be paying no taxes and showing losses on a farm, but still making progress because he’s building up inventory or receivables or increasing prepayments.”

With Farm Credit, you’re also dealing personally with people who know the business. Most of the Relationship Managers grew up on a farm and many farm themselves, including Bennett.  “We understand the agriculture business and how farmers pay and get paid,” he said.

How it works

A Revolving Line of Credit can be established for one to three years. Once you’ve qualified and the line is established, you can choose how to access the funds. Either use a book of drafts that work like a checkbook, move money into your operating account online, or drop by our office and pick up a check. Re-payment is just as easy through online transfer, mailed or hand delivered payment to the office, or wiring funds. No interest is charged until you actually use the money you need.

With a Revolving Line of Credit, you will save on interest expense and the hassle of doing paperwork every year—which often happens at the busiest time for farmers and accountants. It’s like having a continuous, pre-approved commitment for up to three years.

And you can’t forget the patronage benefit that every Southwest Georgia Farm Credit borrower receives: the distribution check that arrives after the first of the year. As a borrower, you are also a member—and we share our profits with our members. The more you borrow, the greater your portion. Although the distribution amounts vary and are never guaranteed, your membership means you have a stake in the success of the organization. And, too, many people look at it as lowering their cost of borrowing; typically it reduces your interest by about one percent. And that’s on top of getting a competitive rate on your credit line or loan to start.

That’s what Southwest Georgia Farm Credit is all about: making products like the Revolving Line of Credit that work as hard as our farming families. We’re doing our part to keep rural America working.

What separates a “revolving” line of credit from other loans?

  • Money is there when you need it; no scrambling for financial statements or stress waiting on loan approval.
  • You only pay interest on amounts outstanding; payments can be scheduled monthly, quarterly, or annually to align with your cash flow.
  • No “zero balance” period. Make draws up to the pre-approved amount; re-payment renews the balance available for future borrowing.