Farm loans: Everything you need to know
Key takeaways
- Lenders provide a variety of farm loans for operating costs, ownership, natural disasters and more
- Farmers edged out of traditional financing can seek low-cost Farm Service Agency (FSA) loans
- To apply for a farm loan consider whether you meet the lender’s criteria for experience, credit and down payment
According to the Kansas City Federal Reserve, outstanding farm debt has risen 15 percent for farm operating loans and 2 percent for property loans in the last year. With inflation and market volatility impacting agricultural necessities like labor, seed, fertilizer and fuel, many farmers may need to seek outside financing to start, grow or sustain their business.
Let’s look in depth at different farm loans and how to get the right farm loan for your farming operation.
Farm Service Agency (FSA) loans
Farm Service Agency (FSA) loans are government-backed loans provided to help farmers start or expand their farm’s growth. Farmers may get approved if they can’t get conventional financing elsewhere or if they qualify as socially disadvantaged business owners.
FSA loans come in the form of guaranteed or direct loans. Guaranteed FSA loans are issued through commercial lenders and guaranteed by the FSA for up to 95 percent of the loan amount. Direct loans are funded and overseen directly by the Farm Service Agency. Farmers can also get a down payment loan for assistance with the down payment of their farm or ranch.
FSA loan types
The FSA offers multiple farm loan programs to help with a variety of funding purposes. Those include:
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Farm ownership loans help farmers pay purchase costs for their farms or to build new constructions on their property. These loans offer up to 100 percent financing for qualifying purchases and come in three forms: regular direct loans, joint financing or down payment loans. For joint financing loans, FSA funds half of the loan while the other half is funded by a lender, the state or the farm seller for property purchases. It also offers partial funding for the farm’s down payment or closing costs.
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Farmers can also get farm operating loans to make purchases needed for day-to-day operations. These loans are direct loans offered by the FSA up to $400,000. Purchases must be used for expenses crucial to running the farm, such as farm equipment, livestock, seeding or land development. Farmers can also use the funds to pay for operating costs and living expenses during the startup phase of the farm.
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FSA microloans offer funding for farm ownership or operating expenses up to $50,000. The microloan program is designed to support first-time farmers or small or unique farming models. For example, Community Supported Agriculture (CSAs), hydroponic or organic farms would fall in the category of nontraditional farms.Farmers will have to meet specific standards to qualify for a microloan. Requirements include choosing a mentor and meeting farm business experience or education requirements.
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Farmers within Native American tribes can apply for a Native American Tribal loan to finance expanding current farming operations for the purpose of increasing agricultural production, boosting the surrounding community and preserving land. Borrowers can also use a tribal loan for land preservation to relieve tensions among tribes and their members.
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To support youth agriculture programs and clubs, young farmers between the ages of 10 to 20 can use a Youth loan to buy livestock or equipment or pay for a project’s operational expenses. The youth will need an advisor to sign off on the loan, but they only need a cosigner if they can’t show the ability to repay. The project should generate enough profit to cover the loan and loan costs. Young people can borrow any amount up to $10,000.
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Emergency loans are designed to help farmers suffering from financial losses due to natural disasters or emergencies. The Secretary of Agriculture or the President of the United States must declare an event a natural disaster. The farm must also have received a 30 percent loss in farm goods production or 30 percent reduced price for damaged crops.The benefit of the emergency loan is that it can be used to pay for production costs as well as living or farm expenses to sustain the farm through the emergency. Repayment terms are also set on a case-by-case basis, and loans for operating expenses go up to one year or 18 months with an extension.
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Loan funding targeting underserved communities is a designation that farmers select when applying for an FSA loan. The benefit is that the FSA targets a portion of its approvals toward disadvantaged farmers, including women, African Americans and Native Americans. To be considered for the targeted funding, you can voluntarily list your race or gender on the FSA loan application.
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Beginner farmers can apply for the same direct and guaranteed loan programs as other farmers. Similar to the FSA targeting disadvantaged farmers, the FSA allots a portion of funds to beginner farmers. You can also apply for the Direct Down Payment loan to fund the down payment for purchasing a farm or ranch. This program is the only FSA program designed for beginner farmers or farmers in a socially disadvantaged community.
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Conservation loans are FSA loans used for conservation projects, including buying conservation structures, installing water conservation, establishing permanent pastures, managing manure and more. You’ll need to create a conservation project plan and get it approved by the Natural Resources Conservation Service to be considered for the loan.
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This FSA loan offers up to $100,000 to qualifying farmers, designed for small farms or specialized farms that don’t need large loan amounts. This loan offers a streamlined application process and can be used for farm ownership or operating expenses.
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To apply for FSA direct loans, you may want to check your eligibility and use the online loan application. For guaranteed FSA loans, you’ll need to contact your local service center to start the application process.
Current FSA loan interest rates
If you plan to apply for an FSA loan, check out the current FSA farm loan rates, which are updated on the FSA website. The current rates for different FSA loans are:
| FSA loan program | Maximum FSA loan rates |
|---|---|
| Direct Farm Ownership | 3.125% |
| Direct Farm Ownership Down Payment | 1.50% |
| Direct Farm Operating | 4.50% |
| Operating Microloan | 5.125% |
| Youth | 4.50% |
| Emergency | 3.75% |
| Guaranteed FSA loans | 9.621% to 11.39% |
*These rates are current as of December 4, 2024
Farm Credit
Farm Credit is a network of lending institutions that provides loans in all 50 states and Puerto Rico. Since borrowers become part owners, these cooperative-owned institutions prioritize customers over profits, helping to make Farm Credit the largest single agricultural lender.
Farm Credit has over 600,000 customers across four districts. Each district has a wholesale bank that provides funds to the cooperative institutions. Farmers, farmer-owned cooperatives, agribusinesses as well as homebuyers and infrastructure providers in rural communities may be able to qualify for Farm Credit loans. There are several types of loans and services depending on the lender you choose.
Farm Plus Financial
Farm Plus Financial is a national farm and land lender offering a suite of services at farmers’ disposal. Its six loan options include term loans and lines of credit. Loan amounts range from $200,000 to $50,000,000 and can typically take anywhere from one to three months to fund, though the lender does have some expedited lending programs that can approve loans in as little as 72 hours.
Its basic loan requirements include:
- 660 personal credit score
- 75% loan-to-value ratio
- 50% LTV for lines of credit
- Property of at least 5 acres
American Farm Mortgage & Financial Services
American Farm Mortgage & Financial Services was founded in 1989 and is a subsidiary of Legence Bank, which has been around since 1906. The lender offers six types of loan products, including agricultural real estate loans, recreational land loans and FSA-guaranteed loans. If you need quick financing and have a credit score of at least 720, you may qualify for the AgXpress loan, which can be approved in one business day or less. The lender also offers agriculture leasing to help farmers cover machinery and equipment costs.
What is a farm loan?
A farm loan is a business loan specially designed to meet the unique needs of the agricultural community. Loans can be used to purchase, run or expand a farm or agricultural business. You can get farm loans through traditional banks and credit unions, though some specialize in farm loans, offering expert advisors, appraisers or other services.
Farm loans can come in the form of term loans, real estate loans for the farm or land or business lines of credit. Specialized lenders may also offer loans designed for beginner farmers.
What can an agricultural loan be used for?
Lenders offer different agricultural loans to meet a variety of purposes, though some loans may be designed for specific uses. You can use agricultural loans for:
- Buying a farm or land
- Assisting with down purchase or closing costs
- Purchasing equipment, livestock or seed
- Expanding business operations
- Constructing a new building on existing land
- Irrigation or conservation projects
- Crop losses and natural disasters
- Operating expenses like marketing
How to get a farm loan
Getting a farm loan typically involves research to find the right type of financing and providing plenty of documentation about your operations and finances. Where to start when comparing farm loans:
1. Determine how much funding you need
Before searching for a farm loan, take stock of the types of purchases you need to make and the capital you have on hand. Lenders may require a down payment. Any amount you apply toward the loan upfront will reduce the loan amount and payments. You’ll want to tally the total purchases (or losses for emergency loans) to determine the needed loan amount.
A farm business plan may be required depending on the type of loan you apply for.
2. Compare farm financing options
Lenders offering farm loans may offer specialized products and services to support farmers. Each lender will differ in the exact products, so you’ll want to carefully compare each lender’s options.
For example, some lenders offer term loans with tiered loan amounts and requirements. Lenders may also offer express loans to speed up approvals for qualified applicants.
3. Choose and apply for a farm loan
Next, you can select a financing option that matches your business growth strategy. You may want to lean on a loan specialist or FSA representative to work through the complexities of your business.
You can then gather the information needed to complete an application. Each lender will give its own documentation list, often on its website.
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- Explanation of farming experience
- Business tax returns
- Business bank statements
- Balance sheet
- Business plan
- Proof of property ownership
- Lease documents, including farm, building or land leases
- List of equipment
- Appraisals for equipment or property
- Personal financial statements
- Outstanding debts
Alternatives to farm loans
To finance farm operations and expenses, farm loans aren’t your only option. You might consider these sources if you don’t meet farm loan qualifications or a specialized loan isn’t ideal for you.
SBA loans
Similar to FSA loans, you can get funding through a loan program overseen by the Small Business Administration (SBA). SBA loans are offered through approved lenders and partially guaranteed by the SBA.
Lenders can offer a number of SBA loans, including:
- 7(a) loan: Its most commonly used program, the SBA 7(a) loan offers high loan amounts up to $5 million to help small businesses get the working capital needed for growth.
- 504 loan: The SBA 504 loan helps small businesses get funding for new equipment or property or building construction projects up to $5.5 million. The loan must be used for property that expands the business.
- SBA microloans: Similar to the FSA microloan, these loans offer loan amounts up to $50,000 through microlenders. Lenders are often nonprofits that work with disadvantaged business owners. They may relax requirements to apply, such as accepting bad personal credit scores or startups.
- Community Advantage loan: The Community Advantage lenders is a unique SBA loan geared to help underserved businesses. Lenders are specially qualified to originate these loans, working with businesses in minority or low-income communities, including rural areas. They may also provide other business resources such as training and mentoring.
Business grants
You may want to apply for a business grant if you can’t qualify or don’t have the business stability to repay a loan. The federal government, including the U.S. Department of Agriculture, provides a variety of agricultural grants and assistance programs.
These grants can meet financing needs for beginner farmers, farmer’s markets, organic producers and more. Farmers can also look for grants through state or local governments. You may find grant listings and requirements online through your state’s agricultural departments. Or you can learn about local funding resources through your local Small Business Development Center.
Small business loans from banks and credit unions
You could qualify for a conventional business loan, usually if you have strong credit, multiple years in business and established revenue. Through traditional banks and credit unions, farmers can typically meet with a representative for loan guidance at brick-and-mortar locations. Banks and credit unions tend to offer multiple loan products to match different lenders’ needs.
Small business loans from alternative lenders
Small businesses may not qualify for loans from traditional lenders, or they might find more competitive rates or terms with alternative lenders. Alternative lenders can include online lenders, loan marketplaces and lenders offering nontraditional business loans like invoice financing. These lenders tend to relax loan requirements, accept bad credit or offering fast or short-term business loans.
Bottom line
The farming industry faces a variety of challenges that require business loans to purchase land or equipment, construct buildings or supplement cash shortages. Farm loans offer the ability to narrow in on different farming needs through loans specialized in these areas.
But every lender and farm loan provides its own set of requirements, including farm management experience and personal and business financial stability. Farmers would do well to compare a variety of lenders and loan types, including government-backed FSA loans for farmers who don’t qualify for traditional business loans.
Frequently asked questions
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You can get a farm loan to start a farm, but you may have to get a specialty loan designed for beginner farmers. The FSA offers loans to startups if you can’t find funding elsewhere. These loans may come with farm management or education requirements that disqualify some from getting approved.
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Most agricultural loans have a long list of requirements and documentation that small businesses must meet. But lenders may offer multiple paths to getting approved, such as meeting experience or education criteria. Some farmers will need to pursue alternative sources of financing if they don’t meet these requirements.
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USDA farm loans are helpful for farmers who can’t qualify for financing through conventional lenders. The U.S. Department of Agriculture issues loans through its Farm Service Agency (FSA), either directly or through qualified lenders.
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Farmers will need to meet a variety of criteria to get approved for an FSA loan. You can be a beginner or experienced farmer but should struggle to qualify for a conventional business loan. You also need to have acceptable credit and the ability to repay the loan, among other criteria listed by the FSA.
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