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Farm Industry Loans: Down Payment, Interest Rates, & How to Apply

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Farm Industry Loans: Down Payment, Interest Rates, & How to Apply

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What is a farm loan?

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.

How do farm loans work?

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. 

What can farm loans be used for?

Farm loans can be used for several purposes depending on the lender's needs. Some common uses for farm loans include:

  • Secure farmland - If you’re looking to buy or lease farmland, a farm loan can help get you the funds you need. You’ll likely need to share with the bank what farming you plan to do and how much you need to ensure the bank is confident in repaying the loan.

  • Purchasing equipment for the farm - Farming requires specialized equipment that can cost thousands of dollars, making it challenging to afford outright. A farm loan can help you secure the equipment necessary to make your farming successful. Also heavy equipment loans may be an option.

  • Marketing expenses - If you want to grow your farm’s recognition and brand, a farm loan can help you fund your marketing and advertising campaigns to get the word out.

  • Purchasing supplies - You can purchase seeds, dirt, and other supplies with the help of a farm loan.

  • Recovering from natural disasters - Thanks to a USDA program, farmers can obtain funds to rebuild after natural disasters have hit their region. 

Farm loans cover various options and can help farm owners, and businesses get the funding they need to grow and sustain their businesses. 

What are the types of farm loans available?

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: 

  • Operating loans: If you need money for the everyday expenses of the farm, an operating loan is a great fit. These loans are used to finance farm costs, like seed or fertilizer.

  • Equipment loans: If you’re wondering how to get a farm loan with no down payment, an equipment loan might be perfect for your needs. Farming requires heavy-duty and expensive equipment. An equipment loan can help you purchase or lease equipment, such as tractors, harvesters, and other machinery — with no down payment since the machinery is collateral.

  • Real estate loans: A real estate loan can help a farm purchase land, buildings, or other farming-related real estate needs. Whether a barn or an office, a real estate loan can help get the structures your operation needs.

  • Livestock loans: If you have a farm that requires animals, a livestock loan can help you purchase or raise livestock, such as cows, pigs, or chickens.

  • Farm ownership loans: These loans can help farmers buy or expand their farms or refinance existing property debt.

  • USDA Conservation loans: The Farm Service Agency has a conservation loan program to help with eco-friendly and conservationist efforts like installing irrigation systems or planting cover crops.

What are some types of farming that have received Farm Loan financing?

The farming industry is widespread and diverse. As such, farm loan financing can cover a similarly broad group of farms and operations, including:

  • Dairy farming
  • Crop farming
  • Livestock farming
  • Hydroponics
  • Aquaculture

How long can you finance a farm?

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.

What are the farm loan requirements?

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.

How to apply for an agricultural 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.

  • Understanding your financial situation and budget - The first step when applying for a farm loan - or any type of debt - is to understand how much money you need to borrow and how much you can afford. It’s essential to check your credit score to make improvements if necessary and unlock the best terms and conditions. To better understand your business through the eyes of a lender, check your SMBscore.

  • Shop for the best terms and conditions - When you clearly understand your credit score and budget, the next step is to shop for a lender that fits your needs and offers your loan type. With the mySMBscore platform, you can find lenders that want to work with you based on your personalized credit data, saving you time and money as you decide which farm loan is right for you.

  • Compile your application materials -  If you’ve found the best farm loan option for your needs, the next step is to submit your application. Ensure you fit all the requirements for the loan you’re applying for. The FSA requires at least three years of business operation experience to qualify.  If you’re wondering, “How can I get a farm loan with no experience?” - you might want to look for a beginner farmer loan for those with less than 10 years of farm operation experience.

  • Submit application - Once you submit your application, a loan officer can review your application and determine your qualification.

How do you qualify for an agricultural loan?

Each loan and lender will have different qualifications for an agricultural loan. However, you will likely have to meet the following requirements: 

  • U.S. citizen, non-citizen national or legal resident
  • Meet the lender’s credit requirements
  • Be at least 18 years of age
  • Have a bank account
  • Access to financial documents like tax returns or bank statements

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. 

What are some tips on how to get a farm loan with bad credit?

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. 

  • Explore online lenders - Since traditional banks and government loans will have stricter requirements, an online lender might be more flexible and work with a borrower with bad credit. 
  • Obtain an equipment loan - If you have bad credit, you might still qualify for an equipment loan since it is a secured loan and requires no down payment. 
  • Take steps to improve your credit score - If you want to review personalized tips and explore how to improve your credit, mySMBscore can help. You’ll be able to view your credit through the lens of a lender to identify necessary improvements, unlocking better terms and conditions for your loan. 

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.

Farm the path to success. . . check your SMBscore today!

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