How to Qualify for an Agricultural Loan

By business.com editorial staff,
business.com writer
| Updated
Mar 12, 2020
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Start or expand a farm with agricultural land financing.

  • Agricultural loans provide the capacity to purchase a new farm or expand current operations.
  • Farm loans are available through traditional lenders as well as dedicated government agencies.
  • Experience in farming and a good credit score is preferred to get approved for a farm loan.

What is an agricultural loan?

Agricultural loans help farmers run their farms more efficiently. It can be difficult to keep up with all of the costs associated with running a farm, so farmers need low-interest agricultural loans to help them stay afloat.

Fortunately, the government often steps in with low-interest loans and other subsidies that help farmers turn a profit.

What are the applications of an agricultural loan?

Farmers can use agricultural loans to

  1. Purchase farmland. Whether you are just starting out as a farmer or wish to expand your current farm business, agricultural land loans help you purchase the land you need to build a great farm.

  2. Cover operating expenses. Besides needing farmland financing, many farmers also need help covering some of the operating costs. Farm equipment is expensive, but it's necessary to run the farm. With better equipment, you can cover more land quickly.

  3. Help with the marketing of their product. If they want to make a profit, then farmers need to sell the product they create. This means that they need an effective marketing plan and money to pay for marketing costs in addition to farmland loans.

How do you apply for an agricultural loan?

Apply for an agricultural land loan from a major bank.

When farmers need financing, most turn to their local banks first. It's often easier to get a loan from the bank that you typically do business with. If your credit is good, you should be able to get an affordable interest rate on your loan.

Apply for direct and guaranteed loans for farmland from the government.

If you do not qualify for a traditional loan, you don't have to sell the family farm. There are government agencies that aim to help farmers get the cash they need to be a profitable business.

Farm Service Agency offers loans to farmers to help cover costs. For example, direct ownership loans help farmers to purchase the land and livestock that they need to get started, while a direct operating loan will help to cover equipment and other farm operating costs.  The National Council of State Agricultural Finance Programs lists the agricultural loan programs for each state.

Look for agricultural home loans to purchase a home and farmland.

If you want to purchase land in order to run a farm, then there are a number of loans that apply directly to you. Housing and Community Facility Programs, operated by the government, offer loans to families that wish to live in rural areas. Farm Credit Services also provides loans for homes in rural and agricultural areas.

Make sure that you understand the details of your agriculture land loan before you sign, especially that there are no hidden costs involved.

How do you qualify for an agricultural loan?

Each lending institution will have its distinct requirements to qualify for any of their loan programs. The first thing the lender looks at is your current credit score. For instance, Farm Plus Financial asks for a minimum score of 660 from at least one of the three major credit reporting bureaus. The lender may also ask for a business plan before considering you for an agricultural loan.

FSA has dedicated officers to review applications for agricultural loans. The officer reviews the applicant's eligibility based on what type of loan they want. For instance, those who wish to apply for a farm ownership loan must have a minimum of three years of business operations experience on a farm or ranch.

Beginner farmer loans ask that the farmer or ranch have less than 10 years of farm operation experience. FSA loans are also available for those who require assistance with only a down payment for a new farm. In this case, the applicant must be able to produce a cash payment of at least 5% of the purchase price.

Agricultural loans are also available for those who currently own a farm and need emergency funding. For instance, if the farm is located in a designated disaster county and the farmer has suffered a production loss of at least 30%, an emergency loan may be granted.   

Tips on how to get a farm loan with bad credit

Prospective farm owners can search for companies that lend to those with poor credit. Although good credit earns you better interest rates, lenders still approve those with bad credit albeit with higher APRs. Once your credit score improves, you could refinance the loan at a lower rate.

Government programs like the FSA are less restrictive about what credit scores they permit from applicants. They will look at your credit score but also consider your background in the farming industry. If you have significant farming experience, then you're more likely to be approved even with a less than desirable score.

Another tip for getting approved for a farm loan with bad credit is to enlist the help of a cosigner. If the co-signer has better credit than you, your loan is more likely to get accepted by the lending agency.

business.com editorial staff
business.com editorial staff
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