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How to Qualify for an Agricultural Loan

Max Freedman
Max Freedman

Start or expand a farm with agricultural land financing.

Running a farm isn't cheap. Whether it's buying new land or purchasing new equipment, the costs can be extremely expensive. That's why many turn to agricultural loans. Agriculture 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. Your experience and credit score will play a key role in whether you are 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 can agricultural loans be used for?

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.

Bottom LineBottom Line: An agricultural loan can be used to purchase farmland, cover operating expenses, purchase new equipment and run marketing campaigns.

How to apply for an agricultural loan?

Farmers have several different places to turn to when in need of 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.

The Farm Service Agency (FSA) 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.

Bottom LineBottom Line: 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?

To qualify for an agricultural loan, you’ll need to take the following steps:

1. Contact a lender (and have a good credit score).

Each lending institution will have its distinct requirements to qualify for any of their loan programs. One of the first things a 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.

2. Know which type of agricultural loan you want.

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.

Similarly, those seeking a farm operating loan must meet the FSA's education, on-the-job training or farming experience requirements. Beginner farmer loans ask that the farmer or ranch have less than 10 years of farm operation experience.

3. Familiarize yourself with all types of agricultural loans.

Agricultural loans aren't a monolith, and the above loan types are only a small piece of the pie. 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

Bad credit is notoriously a huge hurdle to getting a business loan, but you can still obtain financing with a low credit score. Here's how:

1. Find low-credit agricultural lenders.

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.

2. Gather proof of your farming experience (and be prepared to present it).

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.

3. Have someone co-sign your loan.

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.

4. Pursue income-based loans.

Some lenders will approve you based on your farm's income, rather than your credit score. These lenders will let any farm with income above a certain minimum, which varies by loan provider, borrow money. These loans are often quickly approved, though they may be on the smaller side.

5. Show that your bad credit doesn't define you.

Farming experience can prove more important than your credit score to some lenders. So too can other factors such as your debt ratio, business plan and possession of high-value assets – especially those of greater value than your loan. Include these items along with your loan application, and you just might get the funding you need.

Image Credit: RossHelen/Shutterstock
Max Freedman
Max Freedman
business.com Contributing Writer
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He's also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.