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Parents co-signing loans for their children is common in agriculture. This usually happens when the child needs a loan to purchase land, livestock, or farm equipment. Lenders are more willing to make the loan to a beginning producer if the parents co-sign. This means the parents promise to repay the loan if the younger producer cannot. Parents have been doing this as a way to help their kids get started in agriculture for decades. If the child turns out to be an effective producer, the risk of the parents being on the hook for the unpaid loan balance is pretty manageable.
There is another situation when parents may be asked to co-sign or guarantee payment of a child’s debt–when the younger producer can’t pay their loans. This may be the case today for some Nebraska producers, given current low crop prices and thin operating margins. The lender’s request for the parents loan guarantee is a common way to provide additional security for loan repayment.