Every once in a while, we receive inquiries about loans against large parcels of agricultural land, like we did with this loan application for private money financing for a California cattle ranch a few months back. This loan for a 2,500 acre ranch was definitely outside our normal scope of metropolitan 12-month bridge and 60-month investment property loans, but they’re kind of interesting to originate.
This inquiry came from a rancher in Northern California who wanted to pay off two small private notes that were coming due at the end of 2016, pull cash out to upgrade the facilities, and have extra cash on hand to buy a neighbor’s land.
Fortunately, we have a few lenders that will make loans against agricultural land and used a California investment fund for this loan. The fund has made loans against wineries, farms, hobby farms, and even licensed outdoor medical marijuana growing farms.
Two things about this private agricultural loan, that took about three months to close, from application to close of escrow:
- Appraisals take a long time (60+ days)
- Loan-to-Value (LTV) is capped at 50%
This shouldn’t be a big surprise but obtaining an appraisal on agricultural land takes a long time since there are limited appraisers who do them and there are very few comparable sales. So 60+ days was actually a pretty good time frame to receive the completed report. Conversely, in our normal lending, we see appraisals or a broker price opinion (BPO) come back within 1-2 days.
Having the LTV capped at 50% is pretty reasonable to expect on a private money agricultural loan. Agricultural borrowers expect lower LTV ratios. It’s the norm in the farming world.
Agricultural Loan Terms:
- $550,000 Loan Amount
- 9.50% Interest-Only
- $4,354/Month Payment
- 24-Month Term
- 9-Month Prepayment Penalty Period / Guaranteed Interest Requirement
- Three Months From Application to Close of Escrow