A farm loan is a lending product used to expand, sustain, or change a farm or agricultural property. Farm loans can also be used for investing in business growth or getting through a time when cash flow may be tight. Funds can be allocated to help run the farm more efficiently and keep the farm operating smoothly.
One of the most significant benefits of a farm loan is its wide variety of uses that allow the borrower to use the money for things like purchasing supplies or making land improvements. You'll need to meet some minimum requirements to qualify for a farm loan or agriculture loan. If you have no experience getting a farm loan can be a bit more complicated - you may even need to use a personal loan until the business can qualify. As a business owner, the more you understand financing and your financial position - the better the decisions you can make. For more information on farm loans, keep reading. We’ll even cover how to get a farm loan with no down payment.
Farm loans are available from several lenders and government sources to help farmers and ranchers finance their business needs. Terms and conditions can vary based on the type of loan you are looking for, but they can be long or short-term loans with a fixed interest rate that you’ll repay over an agreed-upon period. To understand how the loan works, you’ll choose a loan type and then do further research.
Farm loans can be used for several purposes depending on the lender's needs. Some common uses for farm loans include:
Farm loans cover various options and can help farm owners, and businesses get the funding they need to grow and sustain their businesses.
Since farmers have a wide variety of needs, several types of farm loans are available. You can obtain a government-backed loan from the Farm Service Agency and Farmer Mac or opt for an online lender with more traditional loan offerings.
Some common types of farm loans include:
The farming industry is widespread and diverse. As such, farm loan financing can cover a similarly broad group of farms and operations, including:
The length of time you can finance a farm loan will depend on the loan you get and the terms you’re approved for. For example, the FSA’s farm ownership loan has terms that extend to 40 years. On the other hand, an equipment financing loan is usually maxed out at 10 years. An operating loan is usually shorter, ranging from one to three years.
The longer your loan term, the more you’ll likely spend on interest. Make sure you understand your budget well to ensure your loan repayment terms fit within your budget.
If you want to review terms and understand your loan options, mySMBscore can help. We offer personalized loan offers based on your credit score from lenders ready to work with you. mySMBscore will also give tips on improving your credit, making you more likely to get the best terms and rates.
The requirements to qualify for a farm loan will vary from lender to lender and by the type of loan you’re applying for. But most application processes will review a borrower’s credit score, the business's revenue, and financial statements to determine how much you can borrow and at what terms. For a farm loan, you might also have to meet a minimum time in business requirement and have a down payment.
Curious about how a lender will view your application? Access valuable insight and advice at mySMBscore to help you qualify for a better farm loan.
Applying for an agricultural loan will differ depending on where you get your loan. For example, a loan from a traditional or online bank will be a different process than applying for a loan through the government. Before applying for a farm loan, you should check your SMBscore to identify any areas of improvement or areas that may impact your eligibility. Plus, take the following steps into account.
Each loan and lender will have different qualifications for an agricultural loan. However, you will likely have to meet the following requirements:
Since farm loans can vary significantly based on the type of loan you get, you should closely review all requirements before applying. For example, a Farm Ownership Loan requires you to have at least three years of experience before submitting your application, and you must be the owner-operator of a farm after loan closing. If you are in your first 10 years of farming, you might qualify for different loans through the FSA “Beginner Farmer” program.
If you have bad credit, qualifying for a farm loan might be challenging due to the strict requirements. However, you can still get the funding you need in some ways.
Are farm loan interest payments tax deductible?
Yes! Farm loan interest payments are usually tax-deductible as long as you are legally liable for the debt, the debt is repaid, and you have a genuine debtor-creditor relationship with the lender. If you have questions about tax benefits from your agricultural loan, speak with a tax professional who can ensure you follow the IRS guidelines.
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