Monday, August 9, 2010

Are you in the horse industry for the long haul? Your banker wants to know!


Are you in the horse industry to make money? Most people within the industry are not in the business to achieve their “get rich quick” goal. Most people have horses for a hobby and want to promote the industry. But if horses are your business, you will probably need to obtain some type of financing. It may be difficult to convince your banker or financial institution that your operation is not a hobby and you are in this for the long haul.
This is very important in obtaining financing to purchase your land, barns, and pay expenses for your horse enterprise. Let’s be realistic, the equine industry is capital intense and it can be quite costly whether you are just starting out and need to purchases land or you are paying expenses. At some point, you will probably need a loan to pay for capital purchases or short term expenses. To obtain a loan you will first have to prove to your banker or financial institution that you have the ability to make loan payments and your operation will be profitable. In Pennsylvania, 63 percent of the horse operations have their horses for pleasure and not for showing, breeding, working, or therapeutic uses. This is why most banks assume that equine operations are a hobby for horse lovers. Convincing the bank that you will be profitable is the first step in applying for a loan.
There are different types of loans that you could apply for such as line of credit, intermediate loans, and long term financing. Line of credit is used for paying immediate expenses such as feed, tack, and veterinarian bills. An intermediate loan, 5- 7 years, would be used to purchase items like a truck, horse trailer, equipment, and fencing. Long term financing like a mortgage, would be used to pay for horse breeding stock, purchase land, and construct buildings. The term of a loan should match the life expectancy of whatever you want to purchase.
A Performa or business plan will help to make your banker understand why you want a loan and how you will pay it back. Both of these tools list income and expenditure predictions for your operation. It also demonstrates the borrower’s ability to pay back the loan and indicate whether your business will be profitable. The Performa or business plan will also help you in setting up a budget, while the business plan will assist in marketing as well.
Speaking of making money, have you thought about all the different options in making your horse operation profitable? Will your farm be able to offer boarding? Boarding is a very simple way to make a few extra dollars as long as you have adequate facilities. Training is another way to earn money on the horse farm. If you are good at training your own horses and have great horsemanship skills then this probably will be a rewarding experience for you. How about breeding horses? If you want to enter this market you have to make sure you have quality stock and the ability to market your horses. I have mentioned several different options to prove to your banker that you can be profitable and are in the business for the long haul. Be creative and explore other options, such as therapeutic riding.
Do not overlook insurance! Depending on the type of operation that you have or would like to have, insurance is protection for yourself, your farm, and your horses. Make sure that you invest in an insurance policy that will protect you and your family against liabilities. If you are boarding horses or offer riding lessons make sure you have adequate coverage. You also want to familiarize yourself with the equine liability act, which includes signage on your farm in two locations that reads “You assume the risk of equine activities pursuant to Pennsylvania law.”
So next time you are trying to convince your banker or financial institution that your horse operation will be profitable, remember to know what type of loan you need, have a Performa or business plan, and know of possible options of making money on your operation. Prove to your banker that you are in this enterprise for the long haul.

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