As a young, or new farmer, writing your business plan is typically a solid starting point to developing your farm's financial future. But, how do you understand the financial portion of your agribusiness? Let’s us help guide you through three steps that can help you better comprehend your farm financials.

Jump to: 

1. Financial Statements
   • Income Statement
   • Cash Flow Statements
   • Balance Sheet
2. Ratios and Benchmarks
   • Current
   • Working Capital
   • Liquidity
   • Equity
   • Profitability
   • Efficiency
3. Request your FREE Farm Financials Spreadsheet!

WHY DO I NEED TO UNDERSTAND MY FARM FINANCES?

Before you look into each of the statements and ratios, it's important to know why keeping track of your farm finances is important - it's not just an item to check off the list. Understanding farm financials are important to make sure you're operation is efficient and profitable, remaining compliant with legal requirements for taxes and payroll purposes, and to understand your financial position for when you need a loan to grow. 

Understanding Farm Financial Statements

INCOME STATEMENTS

A farm income statement is one of three important financial statements used for reporting a farms financial performance over a specific period of time. This statement focuses on four key items – revenue, expenses, gains and losses.

Net Farm Income = Income - Expenses

CASH FLOW STATEMENTS

A cash flow statement is a listing of cash (or cash equivalents) entering and leaving an operation that occurred during the past accounting period. A cash flow budget is a projection of future flows that would include expected payments or payments to accounts receivable. Think of this as a “check book registry”.

BALANCE SHEET

As lenders, we commonly utilize a farmer’s balance sheet for a financial reference. A balance sheet is a “snapshot” of a farmer’s financial position and it outlines an individual’s net worth. Net worth reflects the value or dollar amount of the reported assets you actually own, versus how much is currently financed.  Balance sheets from December 31 are the most useful and coincide with taxes. Even if you aren’t requesting a loan, it’s a good idea to gauge your growth and financial position at a given point throughout the year and to keep this timing consistent from year to year. This should help you to determine both your personal and business financial position.

Want to see it explained a little easier? Check out this quick video!

Assets are what you own. Some examples of assets are cash, real estate, equipment, etc.

Liabilities are what you owe. Some examples of liabilities are credit card debt, mortgages, equipment, auto loans, etc.

Farm Financial Ratios & Benchmarks

Financial ratios will tell you how one particular aspect of your operation relates to another in the form of assets and liabilities. You can use these ratios to compare yourself to industry specific benchmarks to measure your performance against the competition and rest of the industry’s producers.

Your current assets are typically balance sheet items that are reasonably expected to be converted to cash within one year in the normal course of your farm business. These are typically feed, seed, crops held for resale, market livestock and accounts receivable.

Your current liabilities are farm debts that are due within one year. These are expenses such as cash rent, credit card debt, and accounts payable for seed, feed or fertilizer.

WHAT IS YOUR CURRENT RATIO?

Current Ratio = Total Current Assets/Total Current Liabilities

Ideally as an owner/operator you aim to have a minimum of a 1:1 ratio. This means that you have enough cash available to pay all of your expenses and bills for the reported period or year. This ratio allows you to see that you have $X available to service every $1 of debt. 

What are ways to improve your Current Ratio? Selling capital assets that are not generating return to the business. This will allow you to use the cash to reduce current liabilities. Also, you can use any extra cash income generated by the farm to pay accounts payable or to reduce your farm operating line of credit rather than making additional principal payments on term loans.  If your farm operating loan is close to the maximum principal level or if your farm has carryover operating debt from the previous year, consider refinancing some of the farm operating debt with longer term financing.

WHAT IS WORKING CAPITAL?

Working Capital = Total Current Assets –Total Current Liabilities

Working capital is the money available to fund a business’s day-to-day operations. Positive working capital indicates the business can pay off its short-term liabilities almost immediately. For your operation, this might look like $/acre or $/cow.

LIQUIDITY

What do financial benchmarks mean for your farming operation? Essentially the figure you are coming up with tells you how much of the year’s expenses you can pay with the liquid funds available for daily operations. Keep in mind the first ratio assumes that all current liabilities (debt payments due in 12 month) are maintained and focuses primarily on the funds available for day to day operations and business expenses. 

Both the current ratio and working capital ratio are measures of liquidity. Liquidity is the ability of the business to meet financial obligations as they come due. It is defined as the availability of cash or near-cash assets to cover short-term obligations without disrupting normal business operations. A good ratio to calculate to reflect liquidity is working capital as a percentage of annual expenses.

Working Capital as a percentage of Annual Expenses = (Current Assets – Current Liabilities)/ Farm Expense.

• <20% - evaluate and make changes*
• 20%-50% - monitor the situation* The reason you would want to monitor your financials closely if you fall within this range is because this ratio tells you that you will only be able to maintain 20-50% of your annual farm expenses with the funds that you currently have available for daily operations. 
• >50% - strong financial position* Depending on your industry and personal risk tolerance it can be assumed that if you fall above 50% for this ratio you are in a comfortable position because you are able to maintain over half of your annual farm expenses with the funds that you currently have available for daily operations.

*Depending on what industry you are involved with these benchmarks could change. If you calculate a 20%-50% 

EQUITY

Why is equity important to your farm operation and how can you use it to drive results? Your equity position depicts the relationship between your assets (what you own) and your financial obligation (what you owe). The equity ratio helps you to evaluate the percentage you own of the assets reported on your balance sheet, versus how much of it may be financed by a lender. The basic ratio to determine percent equity is:

% Equity = Total Farm Equity / Total Farm Assets

• <35% - evaluate and make changes*
• 35%-60% - monitor the situation*
• >60% - strong financial position*

*Depending on what industry you are involved with these benchmarks could change.

PROFITABILITY

This ratio is important because it can help a business owner decide whether or not their assets are making money. Do you currently own assets, equipment, vehicles, or livestock that aren’t making you any money? If so, what you own these assets and is there an opportunity to put your business in a better position by using those assets in another way to potentially liquidating them? The Return on Assets (ROA) shows the percentage of how profitable a farm’s assets are in generating revenue. The ratio to determine ROA is:

ROA = (Net Income + Interest) / Total Farm Assets

• <3% - evaluate and make changes*
• 3%-6% - monitor the situation*
• >6% - strong financial position*

*Depending on what industry you are involved with these benchmarks could change.

EFFICIENCY

To measure efficiency, the Operating Expense Ratio (OER) can be used to show the relationship between operating expenses and gross revenue. This is calculated with the following formula:

OER = Farm Expenses / Farm Receipts

• <3% - evaluate and make changes*
• 3%-6% - monitor the situation*
• >6% - strong financial position*

*Depending on what industry you are involved with these benchmarks could change.

Know Your Numbers

While farming is a risky business, identifying production and financial projections are an important management skill. Farmers do have resources to help determine these values. Think about it this way, what amounts should I invest in acreage to be farmed or livestock to be purchased, raised or sold? Or what amounts will I receive for the sale of farm products? Remember these are projections, do your best to make them realistic. We encourage meeting with your loan officer to help walk you through this conversation and to help interpret what the ratios and benchmarks mean to your individual operation.

As an owner-operator it is important to keep accurate financial and production records for your operation -this will enable you to calculate these projections for the future. If you need some help understanding yours and taking the next step - give us a call. We're here to help!

How are interest rates determined?

If you're currently lender shopping (financial best practice!) you're likely to be curious about the determinants of your interest rate - especially because it varies from place to place.

Of course, there’s always more to consider about a lender than the interest rate alone, but it's one of the most important factors when selecting an institution. There are around 26 different factors that determine interest rate quotes.

Top 12 Factors that Determine Interest Rate

1. Credit Score
   The higher your credit score, the lower the rate.
    
2. Credit History
   The less credit history you have, the less knowledge a lender has of your repayment ability, possibly making you slightly more risky. The better the payment history, the better the rate.
    
3. Employment Type and Income
   Self-employed, hourly employed, bonus-based pay – these all affect the risk factors of whether you’ll be able to pay back the loan.
    
4. Loan Size
   How much money are you asking for? Often if you are requesting an amount under a certain level (i.e.$100,000), there may be a slight increase in rate.
    
5. Loan-to-Value (LTV)
   What percentage is your loan amount to the value of the property? Typically, the lower the percent, the lower the rate.
    
6. Loan Type
   Fixed, variable, adjustable, balloon – these all have varying rates because of the variation of risks. Depending on the situation, your initial interest rate may be lower with an adjustable rate than with a fixed rate but you run the risk of the rate increasing significantly later on.
    
7. Length of Term
   The shorter the term on your loan, the quicker you’ll be paying down the debt; possibly resulting in a better rate. It’s important to note that your payments will most likely be higher, so you’ll want to make sure you can afford it.
    
8. Payment Frequency
   Because of the agriculture industry’s unique nature, if you elect for a payment plan that allows for an annual or semiannual payment rather than a monthly one, you can expect a higher rate.
    
9. Property Type
   A residential housing loan will have a lower interest rate than a commercial farm on 50 acres because of the increased risk that comes with a farm loan. Purchasing a farm or land loan is different because there aren’t as many properties for value comparison, buyers or people that can afford to.
    
10. Co-borrowers
    Will there be other people on the loan, and if so, what does their credit look like? All parties involved in the loan will be used in determining the rate.
     
11. Debt Ratio
    How much money is made monthly versus the cost of monthly bills. The typical ratio that lenders looks at is 42%.
     
12. Documentation Available
    Are you able to produce all documentation (bank statements, taxes, retirement accounts, etc.) to show your assets? This will help ease the risk factors for a lender and help lower the rate.

14 OTHER FACTORS THAT COULD AFFECT YOUR INTEREST RATE

In addition to the 12 factors above, there are 14 other determinants of interest rates you should be aware of:

1. Escrow Preference
   Some lenders require escrows for residential or consumer loans. This means specific money put aside to pay for things like taxes, insurance, etc. If you choose not to escrow, your rate could be higher due to higher risk.
    
2. Closing Date
   Depending on the market temperament, it can be important to lock in on a rate that is as close to your closing date as possible. The longer the rate lock period, the higher the rate will be.
    
3. Occupancy Type
   Typically, rental or investment properties have higher interest rates.
    
4. Residency
   Rates will be lower if you plan to live in the house full-time versus using it as a second home.
    
5. Available Assets
   What additional assets do you have as possible collateral? The more down payment you have, usually the lower the rate.
    
6. Asset Seasoning
   How long have you had your assets? There may be restrictions for assets owned under a certain time frame that could affect the rate.
    
7. Housing Ratio
   What does the ratio from above look like when you add in the cost of the mortgage? Usually a good housing ratio is 28%.
    
8. Improvements Needed
   This will affect the value of the property. Remember that the lower the percentage of the loan amount to the value of the property, typically the better the rate.
    
9. Employment History
   This also affects the risk to the lender. If you show a consistent history of employment, the better chance for a lower rate.
    
10. Relocation
    Are you being temporarily or permanently relocated by an employer? That will determine if the house is considered a secondary (higher rate) or primary residence (lower rate).
     
11. Seller Contributions
    If the seller is able to contribute money towards closing costs, that will increase the amount you have available for a down payment.
     
12. Gifts
    Again, lowering the amount of loan you’ll need with gifts from family members will help to lower the interest rate.
     
13. Cash-out
    If you refinance and want to walk away from closing with money in your pocket, you may be increasing the percentage of loan to property value.
     
14. Combined Loan-to-Value (CLTV)
    This ratio includes not only the current loan you are wanting, but any additional loans on the property, such as a home equity.

You don’t have to remember all of these interest rate determinants, but if your lender is quoting you a rate without asking some of these questions, be sure to ask them what criteria they are using to factor your rate.

How to Compare Loans side by side

THERE’S MORE TO A LOAN THAN JUST THE INTEREST RATE.

Yes, the interest rate is important and is probably one of the first questions you want to ask, however, don’t forget to find out the following:

• Can you reset the loan at a lower rate if interest rates come down? How much will it cost you?
• Is there a prepayment penalty if you want to pay ahead or pay the loan in full?
• Does the lender give great service?
• Do they answer the phone or return calls promptly?
• Can the lender get the loan completed in a timely manner?

A few key things you should compare may include (but may not be limited to) some or all of the following:

• Application fees
• Appraisal costs
• Settlement costs
• Attorney fees
• Title insurance costs
• Loan origination fees
• Servicing fees

If you have any questions about how this works with Farm Credit or what your interest rate could be, give us a call to speak directly with a Loan Officer or fill out the form on our contact us page.

When greenhouse growing first began in the 13th century, it served as a way to appease royalty’s nutritional demands, house foreign tropical plants for study, and grow medicinal plants. Commonly found among wealthy citizens, eventually the science of greenhouse growing expanded to universities where research could be continued and eventually published.

Today, with the surge of new and innovative technology within the agriculture industry, operating a greenhouse isn’t limited to just the wealthy and universities, but to anyone with a desire to start their own business or even just to incorporate new methods of sustainable living into their everyday lives.

Advantages of Greenhouse Growing

Before you decide that greenhouse growing is the next step for your lifestyle, careful planning and research must be taken into consideration to effectively weigh the advantages and disadvantages to greenhouse growing. We’ll start with the benefits of a greenhouse.

EXTENDS YOUR GROWING SEASON.

One of the primary advantages of greenhouse farming is that it extends the growing season. Any gardener or farmer knows planting crops outside depends wholly on weather patterns and conditions that must be suitable for seeds to take root and thrive. With a greenhouse, many different techniques can be used to keep the temperatures stable, causing less stress to the plants and promoting strong growth much earlier in the year. Some popular techniques involve creating thermal solar mass by using natural materials that readily absorb, store and release thermal heat, and using man-made heaters and heating fans.  

EXPANDS THE VARIETY AMONG YOUR PRODUCE.

Another great benefit of growing inside a greenhouse is the variety. As vegetables come in and out of season, prices fluctuate accordingly based on availability, demand, and production methods among many others. Investing in a greenhouse gives your operation the opportunity to provide a variety of different produce on the “off season” creating greater availability for your customers in times of low supply and also having the ability to grow new produce or flowers that do not typically thrive in your climate. Not having to worry about external elements gives you almost complete control to provide the best growing environment for your crops.  

MINIMIZES EXTERNAL THREATS TO YOUR CROPS.

There’s nothing worse than coming out to your newly sprouted seedlings to find that a furry little bunny made a tasty salad out of the dainty leaves that once occupied your defenseless new stems. And just like that, the little bunny doesn’t seem so cute anymore. While rabbits aren’t the worst of your worries when it comes to your crops, in your greenhouse, you control what comes in and goes out. Besides providing shelter from threatening weather, this control allows you to minimize the introduction and spreading of diseases, pesky varmints waiting to snatch up your delicious greenery and to control temperatures to keep your plants from getting too chilly.

Disadvantages to Greenhouse Growing

While the benefits of are significant, there are also some disadvantages to greenhouse growing that you should be aware of.

HIGH UPFRONT AND OPERATING EXPENSES.

In order to utilize a greenhouse to the best of its ability, you’ll need to invest in a kit or supplies that will have a good lifespan and proper characteristics for the plants you want to grow. For example, cheaper film plastics may provide sufficient conditions to retain heat, but more expensive glass windows will last longer and may help ventilate the greenhouse if able to be opened.

With maximum climate control, comes the potential for a very high operating cost. If you choose to heat your greenhouse via electronic heaters or by way of gas, you’ll see a serious increase in your monthly bills.

PESKY PESTS AND LACK OF POLLINATION.

While having a greenhouse can help you control most of what your plants come in contact with, one or two plants carrying pests like whiteflies or other diseases can quickly spread to the rest of your plants, sabotaging your entire crop. Careful precautions must be taken to eliminate any pests or diseases to make sure your next crop won’t be affected.

Implementing greenhouse growing can be an excellent investment when carefully planned, built, and maintained, creating the potential for an increase in revenue or a means of saving on your monthly grocery bill. Make sure to research all of your options before committing to one style or method.

Is Greenhouse Growing a Part of Your Plan?

As always, Horizon Farm Credit is dedicated to providing agricultural expertise and a positive customer experience, so if you’re wondering if a greenhouse will fit into your business plan or what your options are on financing, get in touch.

A Message from the President, Tom Truitt: 

There’s a lot about my job I enjoy, but one thing I never tire of is hearing the unique stories of our members. Some span decades – centuries even, in some cases – while others only a year or two. But regardless of whether I’m talking to a customer in their 50s or one in their 20s, you start to hear common themes among them – a dream, determination, and a passion for what they do.

Farm Credit’s mission is to help all of agriculture, and we take that seriously. As the average age of today’s farmer continues to creep closer to 60, it’s crucial we not only support those who have made the industry what it is today, but to be there for those just entering the field with the hope of progressing it for future generations. The four customers featured in this issue of the Leader are stellar examples of this up and coming cohort of young producers.

This issue also announces the dates of our 2020 customer events (page 12) and the Farm Credit Foundation for Agricultural Advancement’s new Community Education Program, aimed at providing financial support to organizations and programs educating our communities about agriculture (page 13). And, for all you budding entrepreneurs - don’t miss our article on page 14 on how to write a farm business plan, complete with a link to where you can download a template to help make the process even easier. We also have a code for you to get 50% off a QuickBooks subscription to help get you started on the right foot (back cover).

Wishing you all a happy and healthy spring,

Tom Truitt, President and CEO of MidAtlantic Farm Credit

The New Year brings with it many new opportunities and changes for most businesses. While we are all hopeful for a better year, there are also things we can do to ensure 2021 is successful.

Protecting your operation with crop insurance is one way to mitigate risk this year by providing a safety net to your bottom line. Check out these great new Crop Insurance Policy options for 2021:

Enhanced Coverage Option (ECO)

This option is similar to the Supplemental Coverage Option (SCO), but can provide an additional band of coverage up to 95% for a portion of your underlying crop insurance policy deductible. It must be purchased as an endorsement to the Yield Protection, Revenue Protection, Revenue Protection with the Harvest Price Exclusion, Actual Production History, or Yield Based Dollar Amount of Insurance policy.

Quality Loss Option (QL)

This option allows substitution of a post-quality adjusted (QA) yield for a pre-QA yield in an Actual Production History (APH) database in circumstances where quality loss occurs. The QL will be offered at an actuarially sound premium rate. The Risk Management Agency implemented the QL in response to the 2018 Farm Bill to carry out research and development that establishes an alternative method for adjusting quality losses that will not impact your APH.

UPDATED – Hurricane Insurance Protection Wind Index (HIP-WI)

This option provides additional coverage in the event of hurricane-force winds in your covered county or an adjacent county. The objective of this endorsement is to alleviate ad-hoc disaster assistance and speed up the payment time frame in hurricane wind disaster situations.

The endorsement is an addition to your MPCI or CAT policy and will cover the deductible portion up to 95% in coastal area counties designated in the actuarials. The endorsement covers wind damage only, not flooding or excess precipitation. You can choose the percentage of payment you would want to receive in a loss anywhere from 1% to 100%. If your county is deemed to have had a loss from a named hurricane (does not include tropical storm damage), claim payment will be automatic. With this product being new and different from traditional MPCI crop insurance, contact your agent soon to discuss how HIP-WI can fit into your operation’s risk management plan. If you added this endorsement for 2020, it will remain on your policy unless you request that it be removed.

For more information regarding any of these options, please contact your crop insurance agent prior to the March 15th sales deadline. Visit farmcreditcropinsurance.com to learn more about our crop insurance services at Farm Credit.

We are proud to partner with Rain and Hail LLC, QBE NAU, and Rural Community Insurance Services (RCIS).

Horizon Farm Credit recently announced the promotion of Darin Miller to regional lending manager. He is based in the association’s Lancaster, Pennsylvania office.

“I’m looking forward to continuing my career with Farm Credit as our regional lending manager,” says Miller. “Our customers are our top priority, and I am excited about further developing our relationships with them in this new role.”

Prior to becoming the regional lending manager, Miller was a loan officer with Farm Credit for four years. In his new role, he will be overseeing the loan staff in Pennsylvania by helping them meet their sales and training goals, and ensuring each customer’s needs are met.

“We’re excited to have Darin transition into this role,” says Jim Aird, Horizon Farm Credit’s PennMarVa Division Vice President. “He is very familiar with all facets of Pennsylvania agriculture, our customer base, and Farm Credit’s services. We look forward to him continuing to serve our customers as regional lending manager.”

Miller, who grew up on a dairy and poultry farm in Elizabethtown, Pennsylvania, graduated from Millersville University in 2010 with a degree in business administration. He joined Farm Credit as a loan officer in July 2012.

We recently interviewed Phil Taylor. As an ag business consultant, Phil works with farm families to develop contingency plans for their operations. He discusses farm contingency plans including why they are important and what aspects are included in a plan.

There's no doubt that the COVID-19 crisis is impacting agriculture. From your perspective, why is contingency planning important? 

Contingency planning provides a plan of implementation for what we’re going to do in a specific situation. It is a road map for business operators to follow, providing the opportunity to think through the reaction to a future crisis or problem.

A contingency plan allows for a clear communication with employees and family members about what will happen should there be a crisis and which aspects of the plan they are responsible for carrying out. It’s all about being prepared. 

What are the key aspects of a written contingency plan? 

The first part of the contingency plan is identifying the situation. What situation are you in? What specific situations require implementation of a contingency plan?

For example, if you get a phone call from an employee who says they can’t come to work because they are sick, you will need to consider what type of sickness that employee might have. Is it potentially COVID-19 or some other illness? The answer will determine the situation.

Or what if you find out that a delivery driver for a supplier tested positive? You find out that the delivery driver interacted with two or three employees on your farm while making a delivery earlier in the week. That situation would cause a different set of plans.

The second part of a plan is to identify the contacts that you need to alert should a situation arise. Who needs to do something in a certain situation? This could include family members, employees, customers and vendors.

The third critical aspect of contingency plans is identifying the actions. What are you going to do about the situation? What specific actions need to be taken?

From your discussions with farm families in putting together contingency plans, what have been key takeaways for the farm businesses?

This process helps farm families understand the potential harm that could come to people or the business, particularly families with older family members or those who are most susceptible. It encourages thinking through the specific measures that can be taken to reduce the potential for people to become infected such as implementing protocols for cleaning, social distancing and visitor or customer access.

Many farms are frustrated with aspects of the situation that they can’t control and therefore can’t easily plan for. Examples of this include orders to reduce milk shipments and disruptions in the supply chain. Contingency planning helps to minimize the impact of things farms can’t control.

Are there any other final insights you'd like to share? 

By creating a contingency plan and informing your family, your employees and their families, your vendors and customers, it shows that you’ve done some preplanning and it helps instill trust in those people and that you care for their well-being.

We recently interviewed Darrin Youker with PA Farm Bureau on Pennsylvania’s Beginning Farmer Tax Credit, which provides an incentive to lease or sell land, buildings and/or equipment to beginning farmers. The application window for the Beginning Farmer Tax Credit recently opened and is available on a first-come, first-serve basis until funds are expended for the 2020 tax year.

Could you first explain to our listeners some of the key details about the Beginning Farmer Tax Credit including who qualifies and how the tax credits work? 
In terms of who qualifies, it actually is somebody who is defined as a beginning farmer. What is nice is there is no age defined for who is a beginning farmer. Instead, the legislation, or I should say the law, looks at somebody who has been in the business of farming for 10 years or less. That is ascertained by somebody who has not filed a Schedule F for more than 10 years. 

In order to be a qualified beginning farmer, you need to have an application that is filled out and reviewed by the Department of Agriculture and the Department of Community and Economic Development. Once that is finished, you can then start working with a landowner on either selling or leasing. Landowners are the ones who get the tax credit for working with the beginning farmer.

From the landowner side of things, if you lease or sell your land to a certified beginning farmer, you can get an income tax break, again, depending on the terms of those transactions that you can then apply to your state income taxes. This is a way to help incentivize landowners to work with beginning farmers - the thought being that a beginning farmer might not have the ability to outbid somebody for a piece of ground, either on a lease or a sale, but the benefit is by working with that certified beginning farmer, the landowner is going to get a tax credit on their income, so that's part of the incentivization. 

Again, the nice thing is there's no age attached to it, so if somebody is thinking of a mid-career change or has always wanted to work on a farm and is finally developed some of the capital to make that investment, even if they're 40 or 50 years old, they can take advantage of the Beginning Farmer Tax Credit.

How did the idea for the tax credit program come about, and what has been the response from the farm community and others about the program?
How it started was actually a challenge that was issued to Farm Bureau when we were discussing the state budget back in 2018. We have a deep concern for the preservation of farmland and always will advocate to make sure that farmland preservation is being done because it's the future of Pennsylvania agriculture. In that conversation that we had with a senior lawmaker in Harrisburg, he asked the question to our organization: "Well, preserving farmland is great, but what are you guys doing to preserve the next generation of farmers?" 

I have to admit, I kind of stumbled with an answer and didn't quite know how to respond, but we took that as a challenge: Okay, what can we do to help that next generation of farmers? Preserving farmland is one thing, but if there's not the next generation to come and farm that ground, it's a whole other story.

We started doing some research during the summer of 2018 and found that states like Minnesota, Iowa and Nebraska had a Beginning Farmer Tax Credit. We took what was Minnesota's legislation, made it applicable for Pennsylvania, and in 2019, started working with Senator Elder Vogel on introducing it as a piece of legislation. 

As in a lot of things in life, there’s happenstance and chance, and sometimes the stars align. As we were debuting our Beginning Farmer Tax Credit, the Department of Agriculture and the Wolf Administration was debuting its PA Farm Bill initiative. While they were two separate pieces of legislation, lawmakers saw both of those initiatives as a way to advance some good agriculture policy in the state. 

We're very proud of the fact that working with the Department and Senator Vogel and the leaders in the legislature, we were able to pass a tax credit bill unanimously through the House and Senate, and it is now law.

The response from the agriculture community has been great, a lot of folks asking questions about how to qualify, wanting to know how they can take advantage, either as a beginning farmer or as a landowner to work with this program and take advantage of the tax credit. 

We will know its impact later this year because DCED and the Department of Revenue will be starting to give the tax credits for folks that filed in 2020. Now is when we're going to start seeing the fruits of our labor and the labor of others within the General Assembly. This is a 10-year program that can sunset at the end of 10 years, if, let's say for sake of argument, that the program hasn't been widely utilized.

But it's our hope that as this program becomes widely known and widely used.

As we wrap up today’s podcast, could you tell us what makes you excited about the future of Pennsylvania agriculture, along with any other thoughts you would like to share with our listeners today?
This pandemic has been devastating, but one of the good things that we have seen come out of this time is folks having a deeper appreciation for the work that farmers do and a better understanding of how our supply chain operates. I think when folks started to see scarcity in the grocery store shelves, they started to see the complexity of what happens just trying to get food from farm to the table.

What we heard from our members was that those that had already an existing public-facing interaction, whether they sold bottled milk, had a CSA, had a small retail farm market or were processing their own meat, they started seeing a tremendous jump in consumer interest in their products and that's something that has been sustaining throughout this entire pandemic. 

Local foods were already popular in Pennsylvania, but we think one of the benefits of coming out of this pandemic is it's become more popular because people are looking for alternatives and ways to better secure their food supply, which is a great thing. It's a great thing for consumer education.

What makes us excited about the future of agriculture in Pennsylvania is when you look at our state and the diversity of the agriculture products that can grow here, as well as our proximity to so many major markets, and even small towns and small cities throughout Pennsylvania. Going forward, we can expect to see tremendous growth in farmers selling directly to the public, and I think that's just great for the overall strength of the agriculture economy within Pennsylvania.

We recently interviewed a real estate agent from southern Pennsylvania, Martin Heaps with Howard Hanna. During the interview, Martin shared his perspectives on the pandemic’s impact on farm and land real estate. 

Let’s get started by having you tell us a little about your business. How did you end up in real estate?
Well, it was somewhat by accident. I was in the dairy business. I had a dairy farm. We had cattle and I was into purebreds. I thought it would be a good idea to go to auctioneering school to sell purebred cattle. So I jumped on a plane and I went to Reppert School of Auctioneering in Decatur, Indiana. When I was there in class, they suggested that we go back to our home states and get a real estate license to complement the auctioneering business. 

It was sort of coincidence, and after I got home, a broker approached me. I guess he saw something in me. He suggested that I get a real estate license and go to work for his company and specialize in farm and land sales, because a lot of real estate agents don't specialize in that. They're afraid of it. That was 35 years ago.

I took his advice and I went to class and then went to work with him part-time, because I was still milking a herd of cows. After a brief period of time, I thought, "Well, you know what? This is working out pretty good," so we dispersed the herd and I went full-time real estate with him, specializing in farm sales. 

My very first sale, back 35 years ago, was a 104-acre farm with a stone house on it. I got a taste of farm sales quickly. Then I continued on, and I obtained my broker’s license throughout the years. I was doing auctions, too. I've sold real estate at auction, although not so much now. 

Then I worked as an appraiser for Absolute Real Estate Appraisers in York, PA for a couple of years. I did farm and land appraisals and residential, of course.

Now I manage the office in Shrewsbury, Pennsylvania for Howard Hanna Real Estate Services. We have 19 full-time agents here. We're going to open an office in Maryland, which will give us state number 13. We have over 400 offices in soon-to-be 13 states. 

I sort of got into it by accident, but it's been a 35-year ride so far.

All of us have certainly been through a lot in the last year. During the height of the pandemic, what were the biggest challenges for your team in connecting customers with properties? What technology solutions did your real estate team find that you think will remain past the pandemic?
To say it was awful in the beginning, would be an understatement. Of course, we had representatives, attorneys from Howard Hanna and our York County Board of REALTORS® attorney providing input. 

When we were shut down, we were not allowed to leave our house of shelter, as they called it. So if a sign blew over, we were not allowed to leave our house of shelter and go put the sign up. We certainly weren't allowed to show houses. We could not go into someone's house. We couldn't walk onto the yard. We were absolutely shut down. 

So we were introduced to Zoom. I didn't know what Zoom was a year ago. Now we have Zoom calls every week, it seems like.

We had to come up with a way to sell homes. Interest rates were coming down. People were looking to sell. People were looking to buy. 

Not everybody, but most people, know how to use their cell phones. So we would get people to show us their home via video. We would do the market analysis from our home offices. We would list the home via electronic signatures. We would get the folks to go and take pictures of the inside of their homes themselves. Most people were more savvy than we thought they would be. It worked out very well. 

We sold houses that way. In the month of April last year, we sold 12 homes, sight unseen. People put contracts on them and said, "Well, we'll view it when we can." And, of course, we gave them the right, if they didn't like what they saw inside, to not follow through with it if they didn’t want to. There was only a couple of people who didn't follow through.

We held virtual open houses. We had social media and all the technology tools. I'm one of the older gang here, so this technology was a little bit new to me. The young folks were helping me. We sold a lot of houses through it. 

I think we're going to continue to use a lot of the Zoom. You can talk to your children on the other side of the world via Zoom! It’s unbelievable. We all heard things about going paperless 25 years ago too, but I haven't seen that yet. 

I think real estate is a lot different than some industries. Real estate is still a people business. They like to have the personality of the real estate agent help them and coach them and comfort them and give them confidence that their purchase is a good one.

We'll continue use some of the newer tools, but I want to get back to what we think is normal, and we’re almost there. We still have protocols. We wear the masks. We wipe things down. We're very careful with other people's feelings. Some people are still concerned about coronavirus, and they should be. It is something to be concerned about. 

At the beginning of the pandemic, we didn’t know what was going to happen and were afraid that we might go bankrupt. We didn't know. We'd never been through this before. 

But all in all, we ended December 2020 up 47% in sales over 2019. It's hard to believe. That'll bring the next question up as to why, and we'll get into that later. 

We’ve seen a tremendous surge in land and country properties fueled by a pandemic push to leave cities and move to the country along with a low interest rate environment. Do you see this trend continuing in the future? 
Absolutely, for a while. There are a lot of reasons. 

I had a lady who just came in the office this morning inquiring about a property up the street. Her question to me was, "Why such the surge?" I get that quite a bit, but there are a lot of different things. 

Number one is interest rates. Nobody has ever seen interest rates this low. It's just unbelievable. 

We're seeing a lot of people want to be out in the country, and they're gardening. If you remember last fall, you couldn't even buy canning jars in the store. There was a shortage of canning jars. I think people are going to want to grow their own food.

We have offices in upstate New York, and there are a ton of people coming out of New York City. They're getting bombarded to move to the suburbs. We've even had people call us from New York City here in my Shrewsbury, Pennsylvania office. They just want to get out of the city. 

There's folks that have been boarding their horses, and now, we have people coming in and they want to buy a small horse farm so their daughter or son can ride horses without being around other people. 

We're seeing an uptick in folks wanting swimming pools, because they're going to stay home and vacation in the backyard. I've never seen so many people looking for pools. 

It's going to take people a while to forget the desire to live city life. I would say, the next five years. Eventually, they'll forget about it. The next generation will come on, but I think it's going to take a while.

We have a lot of folks working from home. We're seeing in the commercial business, there's going to be a lot of office space for rent, because more people are working from home.

And one more sector of it, is we have many people are moving back from Florida to be near their grandchildren. 

There’s a pile of reasons for this trend, and I do think it's going to continue for a while.

In your market in southern Pennsylvania, what is the “hottest” property type to sell in 2021?
Well, that's a tough one, because they're all hot. It seems to be that every price range is hot. We've never seen so many houses sell for over $500,000 on a quarter-acre lot. 

One that sticks out to me is the big demand is the one-story living. There are lots folks my age, in their 60s, and they want to get out of that two-story and get away from the steps. They want to get a rancher, especially if it's under $300,000 and downsize. 

The next hottest would be the 10 to 15-acre farmette. People want to get in and over 10 acres to save on taxes with the Clean and Green. 

I deal with a lot of Amish families, also. English folks want to have the small farm, but the Amish as well. I dealt with some of those families 25-30 years ago. They all had 10 children. Now, there are 10 children are looking for farms. I have actually sold the children of previous Amish farm customers.

There seems to be an uptick of police officers wanting to get out into the country. I guess, what they see every day in the city, I'd want to get out of there, too. 

I don't think there's anything that's not hot right now. I had a car dealer friend of mine. I sold him a farm years ago. He sold his car dealerships in Baltimore and he had a funny saying. He said, “There's a behind for every seat.” It kind of goes the same way in real estate. There's somebody who will buy the fixer upper. Somebody will buy the $900,000 home. Somebody will buy the 200-acre farm. There's people out there for everything in between.

What tips can you share with our listeners if they are in the market for land and country properties this year?
I think it goes without saying you have to buy it when you can find it. If you find it, buy it. Take advantage of these interest rates. These interest rates can't possibly stay where they are. 

The other thing is, there's probably never going to be the perfect house or the perfect property. But you can make an almost perfect property into a perfect home with a little bit of foresight and work. So don't be too picky. Take advantage of the interest rates. If you're young and healthy, go ahead and buy. 

We're seeing multiple offers on most all of these properties. Just the other day we had a property with 12 offers, and we had to sit down and go through them. So there were 11 people there that did not get a home bought.

Again, buy it when you find it. Don't be afraid to take the chance and take advantage of these interest rates. 

Two years ago it was normal that a home would sell for about 94% of the asking price. Today, it's 99%. And some of them are going above asking. People are agreeing that if they go $10,000 above asking price and it only appraises for asking price, they will come up with the difference in cash. I've never seen that before. But we are seeing it. It's a frenzy right now.

Get with your real estate agent. Have your real estate agent put you on a drip campaign, where you can see the properties as soon as they hit the market. Don't wait around, because if you don't buy it, somebody else will.

Is there anything else you would like to share with our listeners today?
Again, I'm going to go back to interest rates. I would say probably a lot of these young listeners today have never seen interest rates in the 8, 10, 15% range for home ownership. When I bought my first herd cows, the interest rate was, believe it or not, 18%. I didn't know any different. I just thought, "Well, that's cost of doing business." 

We probably won't see interest rates at 3% or below. In the younger generation of buyers, they often think, "If interest rates went to 5%, I'd be afraid to buy." You know, 5% is still a good interest rate. It's just the times we live in.

I have a funny story for you before we get off the air. There was a guy named Jack. Jack was relatively new to the real estate business, this is back in the '80s. Jack listed a nice brick Cape Cod home outside of Glen Rock, Pennsylvania. I happened to have a buyer who was looking for just that location and that style house, but he couldn't get qualified for a loan because interest rates were at 11% and it came down to 10.5%. Then Jack listed that house. 

I went to work one day and, of course, we didn't have computers back then, nor cell phones. We got a call from our lender and the interest rate dropped to 9.75%. I got on the phone, and I said to this guy, "Get up here and bring your checkbook. You've got to get a contract written and you have to get it locked in tonight."

"Tonight?" he asked. "Can't we wait until tomorrow?" 

I said, "No, you've got to get up here tonight." We locked him at 9.75%. He was ecstatic. 

If you're thinking about buying and interest rates do go back to 4.5% or 5.5%, it's not the end of the world, that's for sure.

Dan Brogdon, a former Horizon loan officer who now serves as a lender development coach, addresses many common questions we’ve received about the Small Business Administration’s Paycheck Protection Program (PPP) and the loan forgiveness process.

The PPP Flexibility Act was signed into law on June 5, 2020 and offered a number of changes to the SBA PPP program. One key change was expanding the covered period from eight weeks to 24 weeks. Could you help our listeners understand the advantage of the 24-week covered period, and if there are instances when borrowers could still use the eight-week covered period. 
If the borrower had their PPP loan in place prior to June 5, choosing between an eight-week covered period or a 24-week covered period is the borrower’s choice, and they should select the one that best fits their individual situation.

Some of the advantages to choosing the 24-week options include:

• It allows more time to use the funds towards eligible payroll and non-payroll expense. This is especially helpful for restaurants or businesses that we shut down for an extended period of time by government order.
• The documentation is simplified. Most borrowers can use payroll to achieve 100% loan forgiveness. This eliminates the need to submit documentation for non-payroll expenses.   
• The first payment will not be due until 16 months from loan origination. There's plenty of time to apply and if you receive 100% forgiveness, you will owe no interest. With the new program terms, Horizon will extend deferred payment for loans originated prior to June 5.     

The PPP loan was based on 10 weeks of the borrower’s payroll. Borrowers now have 24 weeks to use up 10 weeks of payroll, which should be easy to do. Using payroll for all of the forgiveness avoids using eligible, yet somewhat gray area, non-payroll items such as: inter-company rent or loan/utility/lease agreements that are in the owners (not the business) name, to name a few.     

There are instances where the borrower may prefer the eight-week covered period. They may choose this if they don’t want the loan on their books and want to get it forgiven as soon as possible. Many borrowers had prepared for an eight-week period so they might not want to wait. Rest assured that how fast you apply has no impact on the amount that will be forgiven. The funding is already in place for PPP loan forgiveness, so there’s not a rush.

One thing that’s important to remember is that any PPP loans originated after June 5 automatically have a covered period of 24 weeks.

Another change introduced in the PPP Flexibility Act was the option for the EZ PPP Loan Forgiveness Application. Could you share about the EZ application and what borrowers may be eligible to use this form?
The EZ Loan Forgiveness is a shortened application where the borrower can do fewer calculations and provide less documentation. It still gives the option for an eight-week or 24-week covered period, so it doesn’t matter for the length of your covered period.

There are three different situations where borrowers may use the EZ application: 

• Sole proprietors or partnerships with no employees
• Businesses who did not reduce FTEs (Full Time Equivalents) or pay rates 
• Businesses who were shut down due to government order

If you fit that criteria, we’re encouraging borrowers to use the EZ application because it a simpler process.

Another common question we get from borrowers is when they should apply for loan forgiveness. What’s your recommendation? 
In general, we recommend waiting about one month after the borrower’s covered period ends to apply for loan forgiveness. Under PPPFA, the borrower actually has up to 10 months after the covered period to apply, so there’s plenty of time. As I mentioned before, you will get the same amount of forgiveness whether you apply one month after your covered period or 10 months after. Of course we encourage you not to wait until the very end.

You might be asking if you can apply before the covered period ends. Yes, there are instances when you could apply before the end of the covered period, but you should fit one of these two categories:

• Sole proprietors and partnerships with no employees who choose the 24-week covered period. Their forgiveness has been pre-determined based on 2019’s net self-employment income.   
• The borrower used up the PPP funds and is satisfied they have achieved maximum loan forgiveness and are certain that they have not/will not reduce FTE’s or any individual employees pay rate.

Are there any other thoughts you'd like to share with our listeners today?
The PPP program has helped many businesses during this time, but it has been a challenge for all of us to keep up with all of the program changes. Forbes magazine compared it to a roller coaster ride at Disney World. As new information is released, we’re doing our best to review the details and share that information with you.