Agriculture Business Loans

What are farm loans?

An agriculture loan is designed to help businesses in the agricultural sector get the funding they need. In most cases, this will be a lump sum amount paid back monthly over several years, but there are other options available.

How do farm loans work?

In many cases, farmers and ranchers are asset-rich and relatively cash poor, receiving large sums a few times a year. To smooth cash flow or get an injection of cash for expansion, you may decide to get an agriculture business loan. If so, you’ll compare loans and rates, gather together the right documentation, and apply. Once approved, you’ll usually receive the funds as a lump sum in your bank account for you to use as you please, and will pay it back (plus interest) with a monthly payment.

How can an agriculture business loan help my business?

The good news is most agriculture business loans can be used for any business purpose. Some uses may be:

• Have more working capital
• Try new livestock or crops
• Purchase new animals or seeds for the next season
• New equipment purchases
• Hire new employees or temporary staff
• Expansion – purchasing new farmland and buildings
• Upgrading livestock housing
• Utilities
• Fuel
• Feed bills
• Hardware and tool needs
• Website or store maintenance if you sell directly to consumers

What are the different types of agricultural business loans?

There are 5 agriculture business financing options you should be aware of:

FSA Loans

The U.S. Department of Agriculture’s Farm Service Agency (FSA) operates several loan programs for agriculture businesses.

• The Direct Farm Operating Loan Program: This program finances the purchase and maintenance of a farm or ranch and provides a route into the agriculture business sector. Up to $400,000 is available funded by the USDA budget. You can use the money to buy and operate a farm, buy livestock, refurbish buildings, and so on.
• The Direct Farm Ownership Loans: This program offers loans of up to $600,000 for the purchase of a farm, improvement, increase in production, and help “save farmland for future generations.”
• The Guaranteed Farm Loan Program: This operates rather like an SBA loan program where the FSA guarantees loans provided by approved commercial lenders rather than providing the money itself. Loans to a maximum of $1,825,000 to buy land are available, up to 95% protected by the FSA.
• The Emergency Farm Loan Program: This program is specifically designed for when a natural disaster or emergency occurs and impacts agriculture. Up to $500,000 is available to help recovery when you have experienced the effects of a natural disaster such as flood, severe storms, drought, and extreme weather conditions.
• The Microloan Programs: The Microloan program is aimed at the needs of small farmers and non-traditional agriculture businesses. There is a Direct Farm Ownership Microloan to help with a down payment and repair on a small farm together with a Direct Farm Operating Microloan which helps with operating costs.

Term Loans

Traditional banks and alternative lenders offer long and short-term loans. The lender agrees to lend you a sum of money which you pay back plus interest over the term of the loan. The term may be anything from a few weeks to a year for short-term loans and up to 25 or more years for a long-term loan. Short-term loans are often easier to qualify for than long-term loans but usually carry higher interest rates.

Some lenders regard agriculture as a risky investment so you may have to shop around to find a loan provider.

Business Lines of Credit

This works in a similar way to a credit card. The credit company gives you a maximum amount you can draw and you can “dip into” this as often as you like. You make regular repayments and the amount you repay is then available to borrow again. You only pay interest on the amount you draw, not the spending limit.

A business line of credit is often easy to set up and the funds are available quickly but interest rates may be high.

Equipment Loans and Leasing

An equipment loan or leasing agreement requires no collateral as the equipment acts as the guarantee for the money. This type of financing helps you spread your machinery investment over time rather than having to pay the whole amount upfront.

Real Estate Loans

Some lenders provide agricultural real estate loans for when it is time for you to physically expand your business. You provide a down payment for the acreage or building, often 5%-20% of the total, and the loan provider makes up the difference. This allows you to pay off the debt over several years whilst having the use of the land from day one. The property acts as the collateral.

Are there USDA farm grants to help my agriculture business?

A grant is money that is given to you, not loaned, and the U.S Department of Agriculture has several different programs you may apply for:

• Rural Business Development Grants
• Sustainable Agriculture Research & Education
• Pandemic Assistance for Producers

Other grants are available at a state level and from non-profit organizations, so do your research into what’s available in your area and apply to any you’re eligible for.

What are the pros & cons of agriculture business loans?

PROS

• A loan allows you to grow and develop your business without sapping your working capital
• You can take advantage of time-limited opportunities
• Can help you keep your business moving while you wait for invoices to be paid

CONS

• Many loan applications take 2 – 8 weeks to complete and get approval
• If something changes, you may find the repayments difficult to keep up, which can be scary if they are secured on essential equipment or even your land
• Loans often have stringent requirements to meet, which can be difficult if you’re a small operation

How much can I get with a business loan for agricultural land?

Loans are available up to $1.8M with The Guaranteed Farm Loan Program.

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