What Your Lender Reads on a Farm Balance Sheet
Line by line through a farm balance sheet the way an ag loan officer reads it — what each number tells them and where files get flagged.
Heath Kellogg8 min read
Your balance sheet is a photograph of one day. The loan officer reading it isn't trying to understand your whole operation from it — they're checking six or seven specific things and then deciding whether to ask you a question. Knowing which things saves you the question.
1. Current assets, and whether they're really current
Cash, receivables, grain inventory, prepaid inputs. The scrutiny goes to grain inventory: what bushels, valued at what price, as of what date. An inventory number with no supporting detail gets discounted or ignored, which quietly wrecks every ratio underneath it.
2. Current liabilities, including the part people forget
Operating line balance, accounts payable, accrued interest — and the current portion of term debt. That last one is the most commonly omitted line on a farmer-prepared balance sheet, and leaving it out makes the current ratio look better than it is. Your lender will add it back.
3. Working capital and the current ratio
Current assets minus current liabilities is working capital. Divided instead of subtracted, it's the current ratio. Most ag lenders want a current ratio above 1.5 and working capital of at least 20 percent of gross revenue, though credit policies differ by institution.
| Measure | Strong | Acceptable | Watch |
|---|---|---|---|
| Current ratio | Above 2.0 | 1.3 – 2.0 | Below 1.3 |
| Working capital ÷ gross revenue | Above 30% | 10% – 30% | Below 10% |
| Debt-to-asset | Below 30% | 30% – 60% | Above 60% |
4. How the machinery line is valued
Cost less accumulated depreciation is what a lender expects to see, with market value shown separately if you want it considered. A machinery line at optimistic market value with no cost basis behind it is the fastest way to have the whole statement treated as an estimate.
5. Land, and whether the valuation moved
Loan officers compare this year's land value to last year's. A jump with no purchase behind it gets a question, because appreciated land inflates equity without improving the operation's ability to service debt.
6. Debt-to-asset and owner equity
Total liabilities divided by total assets. This is the solvency check — whether the operation could absorb a bad year. It moves slowly, which is exactly why a sudden change draws attention.
7. Whether it ties to anything else
The single strongest signal in a loan file is a balance sheet that reconciles to the income statement and the tax return. Ending equity should equal beginning equity plus net income minus withdrawals. When those tie, a lender stops auditing and starts underwriting.
TapGrow360 produces a balance sheet, P&L, and cash flow from the same entries, so the three statements tie without manual reconciliation. See lender-ready financials
Want the two numbers your lender calculates first? Run them before your renewal meeting. Working Capital Calculator
Frequently asked questions
What current ratio do ag lenders want to see?＋
Most look for 1.5 or better, and treat anything under 1.3 as a watch item. The threshold is set by each institution's credit policy, so it varies — but under 1.0 means current bills exceed current assets, and that draws attention everywhere.
Should I show machinery at cost or market value?＋
Cost less accumulated depreciation as the primary figure, with market value in a supplemental column if you want it considered. Market-only valuations without a cost basis get discounted by most credit departments.
Why does my lender add current portion of term debt?＋
Because the next twelve months of principal payments are a real claim on current assets. Omitting it overstates working capital and the current ratio, so lenders add it back whether or not your statement shows it.
What date should a farm balance sheet be dated?＋
Fiscal year end, usually December 31, and the same date every year. Comparability matters more than convenience — a March balance sheet compared to a December one tells the lender almost nothing.
Keep reading
Prepaid Inputs and Grain Inventory, Done Right
Two entries cause more ratio damage than anything else on a farm balance sheet: fall prepays and grain in the bin. Here's the fix.
Read →Chart of Accounts for a Grain Farm (With the List)
Most farm bookkeeping problems start with a chart of accounts built for a hardware store. Here's one built for grain.
Read →How to Create Lender-Ready Farm Financials
Your ag lender doesn't just want a tax return. He wants clean statements that show the operation can pay him back.
Read →