What is a farm loan?
Agriculture and farm business loans are a way of obtaining financing to fund the day to day operations of a farm business, the establishment of a new business, or the expansion of an existing business.
The most common types of agribusiness loans include real estate and improvement loans, operating loans, and farm equipment loans.
Can farmers obtain business financing?
Farmers have access to various forms of financing that can be used for their operational expenses including business loans, USDA farm loans, personal loans, equipment loans, commercial real estate loans, and more.
Each of these options has their own unique set of pros and cons which we will cover later in this article.
Agricultural financing can be obtained through banks, credit unions, the USDA, and even specialized lenders such as Farm Bureau Bank, Farm Credit Services of America, and Farm Credit Mid-America. Alternatively for fast funding farm business owners can turn to online lenders for loans. With the competitive nature of the internet oftentimes you can find some of the best offers online.
How farm business loans work
The specifics on how your farm business loan works can vary depending on the type of loan. For example a general business loan can be used for any business expense. In most cases they are funded as a lump sum and repaid in fixed monthly installments with interest. Equipment loans on the other hand typically go directly toward the purchase of new equipment and repayment schedules can vary. Another example would be a land loan. Land loans are typically backed by the land. Again, repayment schedules can vary.
Financing options for farmers
There are a variety of financing options for farmers to take advantage of to fund their operations:
- Business loans: Farm owners can use business loans to improve cash flow or cover the cost of expansions, equipment, and more. Traditional business loans can be obtained from a variety of sources including banks, credit unions, government agencies, online lenders, and specialized farm lenders. Also known as term loans, this type of financing is one of the most common ways to fund expenses.
- USDA farm loans: The USDA offers a variety of government-backed loan programs ranging from operation loans, microloans, emergency loans, and farm ownership loans. These loans are offered through the Farm Service Agency (FSA) and often offer the best interest rates and loan terms to qualified applicants.
- Equipment loans: Equipment loans have the advantage of being secured by the value of the equipment being purchased, potentially resulting in lower interest rates and easier eligibility requirements. These loans give farmers a way to take advantage of new technological advances in the industry that make their operations more efficient. Farm equipment financing may be obtained through the equipment manufacturer, the USDA, banks, credit unions, and other lenders like AgDirect®.
- Personal loans: Alternatively, farm owners can consider pursuing a personal loan to cover their agribusiness expenses. Most personal loans don’t have any sort of restrictions as to how the funds are spent, making them the perfect way to cover your farm purchases and expenses. Amounts up to $100,000 are typically available with low interest rates and quick funding. For new farm businesses that may not qualify for a business loan, a personal loan can help get your business off the ground.
Regardless of the type of loan you choose, Primerates can help you find the best financing offers.
Pros and cons of farm loans
Farm loans can help farmers make it through the off-season, purchase more efficient equipment, keep up with industry technological advances, hire more seasonal workers, and make other financial decisions needed to expand the business. While there can be a huge upside, there’s always a downside too. While pros and cons can vary based on your situation, here are some general pros and cons directly related to farm business loans.
- Government-backed loans can offer low rates
- Funding can help grow your business
- Improve cash flow
- Increase efficiency with advancements such as new equipment
- Potential down payment requirement
- Lengthy application process
- Interest and other fees
- Taking on debt
What is the best loan for farmers?
While the best loan for you and your agricultural business will depend on your own unique financial situation, there are a few options for farm loans that are better than others.
Typically, FSA farm loan programs that are backed by the USDA offer agribusiness owners the best deals on interest rates and flexible loan terms as well as the most lenient eligibility requirements.
In order to find the best financing option for you, you'll want to consider and compare interest rates, loan terms, eligibility requirements, fees and other costs, loan amount, and loan type.
Are there alternative financing options available for farmers?
In addition to farm loans, farmers can take advantage of a few other types of financing options including credit cards, grants, aggie bonds, and private contracts. In addition, structuring your agribusiness as a community supported agriculture (CSA) organization allows you to receive funds from community members who pay a fee at the start of your growing season in order to access a portion of your harvest.
Financing options are also available through financial cooperatives such as Farm Credit Services of America and Farm Credit Mid-America that offer financial services and other membership benefits to those living and working in rural communities.
How hard is it for farmers to get a business loan?
Obtaining a farm business loan can be slightly more complicated than obtaining a traditional small business loan. But with the right amount of research and effort and the proper documentation, agricultural businesses can take advantage of the same types of financing options other companies can. In fact, farmers may even have more options since they are operating an essential business. This is part of the reason why the process may be more complicated. Seasonal changes may also present financing challenges.
What credit score do I need to obtain a farm loan?
Unsecured loans may require a higher credit score than secured loans. Unsecured loans are not backed by collateral so the lender will need to be confident in the borrower’s ability to repay. In general you should have a good credit score (670 or higher) to qualify for a farm business loan. However, you may still qualify with a lower loan. If you’re unsure about whether you’ll qualify or not, check offers through a site that does not pull your credit such as Primerates.
Can I obtain business financing for my farm with poor credit?
Thankfully, even if your credit is not up to par, there are steps you can take to increase your credit score, or you can consider applying for your business loan with the help of a co-signer or co-borrower. Using a co-applicant allows that person’s credit score and financial information to be used in place of your own, giving you access to better rates and terms while increasing your odds of loan eligibility.
Applicants with poor credit may want to consider looking for loans and other financing options from alternative sources such as credit unions and online lenders. These financial institutions are often more lenient than traditional bank sources.
Tips to qualify for a farm business loan
In order to qualify for a farm business loan, there are a few basic tips to keep in mind before applying:
- Improve your credit score – With a better credit score, your business will have a better chance of getting approved for a farm business loan. In addition, the higher your credit score is, the lower the interest rate on your loan will likely be. Applicants should aim to have a credit score of at least 660 and above, although a co-borrower can be used if needed in order to qualify. There are several things borrowers can do to quickly bring up their credit score including paying down any other debts, fixing any errors on their credit report, avoiding collections activity, and removing any missed payments or other derogatory marks from their report.
- Gather your business documentation - Having the right supporting documents to submit with your farm or agricultural business loan application is important. In order to obtain this type of loan, most lenders will want to see solid proof of your business operations and your financials including a business plan, profit and loss statements, revenue projections, and tax returns. Be sure to have this information ready to go to save time on your farm loan application process.
- Consider alternative lenders – While many agricultural business owners are able to receive funding through traditional banks, it pays to consider other options as well. Local credit unions are another potential source of farm business loans, and online lenders can be a viable option as well. Credit unions and online lenders tend to have more lenient application requirements, a quicker underwriting process, more flexible terms, and lower interest rates than banks do.
- Timing is everything – The busy season for agribusiness loans and other types of financing is in the spring. Consider applying at the end of this peak season when your revenue and operations are at its best and lenders may be offering better deals to generate more business.
- Shop around to compare rates – When you get prequalified from a few different lenders, you are better equipped to compare not only interest rates but also loan terms to find the best deal.
Compare rates and apply
Exploring loan offers is essential if you want to find the best deal. However, window shopping online can be exhausting. To avoid being advertised one thing and offered another, check farm business loans at Primerates.
PrimeRates offers farm owners a convenient and safe way to explore financing offers. Say goodbye to the days of advertised rates that you’ll never be offered. At PrimeRates, you can receive personalized financing offers that you can actually take advantage of. We are all about convenience and transparency for our users. Whether you’re ready to take on a farm business loan or just in the early shopping stages, visit PrimeRates to explore offers.
Help your farm thrive. . . check farm business loan offers today (no credit impact)!