How To Handle Operating Loan Denial


As many farmers wait impatiently on operating loan applications to be processed, it’s important to have idea what your options are if you get denied. Ashley Arrington of of Farmhold Financial, says there are a few steps you need to take if you find yourself in this position. 

First, evaluate your circumstance and be brutally honest. Ask your banker for details about your denial, especially if they are the lender financing your real estate. 

“Ask the banker, ‘Does that mean I need to move all my business or are you just not going to operate me?’” she advises. There are two common responses. “We aren’t foreclosing on you, we just can’t provide you operating credit at this time” or “you need to move all of your business somewhere else or we will foreclose on you.”

If you find yourself in the first bucket, there are several options. One is alternative financing. 

“There are a lot of businesses out there that do operating loans,” she says. “Yes, they’re at a higher interest rate, but it will allow you to operate, typically with just the crop and crop insurance as collateral.”

The other thing you can do is to ask your lender if they will grant your operating loan through FSA’s 90/10 program, she says. Often lenders will do that because it limits their liability to 10% of the loan, FSA holds the remainder. If that’s an option you choose, contact your local FSA office immediately to start the paperwork process, because it often takes longer than commercial lines of credit, she adds. 

If you fall into the other denial scenario and a bank is asking you to move your business, that’s a bigger issue, Arrington says. 

“I would talk to your attorney and accountant and then they can get a financial consultant on board to see what the options are,” she advises. “Could you put a loan package together to move your business? Chances are if you were denied other banks aren’t going to take you.”

At that point, producers have to start processing hard scenarios like selling some land or filing bankruptcy. 

“That’s not a process you want to walk through alone,” she says. “Find experts, sit down and really process the options.” 

How To Handle Operating Loan Denial