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Most agricultural producers rely on farm loans to grow their businesses. Farm loans come in different forms, but generally, these loans provide liquid assets, which farmers use to buy inputs, equipment, land, and livestock.
Whether this is your first time applying for a loan for an agriculture business or the tenth, knowing the top lending options will help you achieve your goals and increase profit. As a farmer, what are the lending options available for you?
Purchase of Land
Agricultural lands cost a hefty sum of money, and buying a parcel involves other fees. Thankfully, you can take advantage of the different financing options to purchase land.
Farm ownership loans are a lending option available to farmers who want to buy agricultural land. You may use this type of loan to buy land in a new location or to purchase land to extend an existing property. While its primary use is to acquire land ownership, there are many occasions when farmers can use it for other needs such as:
- As a down payment for agricultural land
- As payment for closing costs
- For improving soil and water quality and conservation
- Restructure debt
- For the purchase and construction of farm dwellings and other facilities
USDA FSA Guaranteed Loans
The Farm Service Agency can provide financing to eligible borrowers through two methods: direct loans and guaranteed loans.
Direct farm ownership loans are designed for farmers and ranchers who want to acquire rural land. Financing comes directly from the USDA, and the department acts as the lender. However, you may need to check availability first as this loan is only available in certain areas.
USDA FSA also offers guaranteed loans to farmers and ranchers. Although guaranteed by the USDA, private lenders provide the financing. This form of support can allow for terms or conditions which are more favorable for borrowers.
Equipment Financing
Having the right equipment for all your farm will increase your farm’s productivity. Farming equipment can be extremely expensive. Without financing, it will be hard to make equipment purchases. Equipment loans are available for financing most all equipment needs, and terms can be customized to fit each individual farmers cash flow. Like land ownership loans, some equipment loans can be financed leveraging various USDA programs, with both direct funding and guaranteed funding options available.
Microloans
Microloan programs are designed to finance the needs of new farmers and non-traditional and niche types of farm operations. It may also be an option for agricultural businesses involved in marketing and sales arrangements like farmers markets. Microloans are ideal for financing equipment purchases with the loan amount reaching up to $50,000.
Specialized Loans
Specialized loans are another loan program guaranteed by the USDA Farm Service Agency. Emergency loans are an example of a specialized loan. While this is primarily used for emergency farming situations such as drought recovery, it may also be used to finance equipment purchases that will be useful to counter drought effects.
Native American tribal loans are a type of lending option specially offered to the tribes to acquire equipment. However, this is not the only purpose of this loan. It may also be used to improve farming operations, acquire land within the tribal community, and increase production.
All borrowers must meet certain requirements to be eligible for equipment financing. Some requirements that may be necessary include having managerial experience, the ability to settle debt, and good credit history. First National Bank of Oklahoma does not participate in all of these loan programs.
Livestock Financing
With the increasing number of loan applications received each year, the FSA prioritizes underserved borrowers such as beginning farmers, veterans, and natives of rural locations. This also doesn’t mean they aren’t approving other borrowers.
There is no specific loan designed for this particular purpose. However, since livestock is essential for maintaining farm operations and production activities, guaranteed loans, direct loans, microloan programs, and specialized programs are similar options for financing this type of agricultural need.
Asset Financing
Now, what are considered assets of farmers and ranchers? Farmers own two types of assets. Current assets are cash, livestock, supplies, feeds, and inventory stock. Non-current assets are farming equipment, dwellings and buildings, and breeding livestock.
Asset financing is a type of lending option for farmers where one can use his assets as security in exchange for a loan.
To be qualified for asset financing, the borrower must present a balance sheet in addition to the standard loan requirements. A balance sheet is a statement that discloses your assets. Short- and long-term liabilities, shared equity, and other important information that summarizes your business’s current standing must be included in a balance sheet.
Asset finance is a type of small business loan for agriculture that is often used to cover short-term needs for operational costs. However, there are also lending companies that offer longer asset financing terms.
Restructure and Recovery
Not all loans turn out successful in the end. Some borrowers undergo duress causing financial struggles. When the borrower can no longer pay his debts, he can apply for debt restructuring.
Debt restructuring is a financing solution with the goal of restructuring your debts to make them easier to pay. Solutions may include lowering the interest rates and extending due dates for payments.
With debt restructuring, farmers default to improve their chances of finishing the loan and staying in the business. Defaulting is a much cheaper option than declaring bankruptcy, although both ways can affect your credit standing.
Leasing and Hire Purchases
Leasing and hire purchases are another way to acquire assets with low risks. They are often used to finance equipment purchases but follow different terms than traditional loans offering liquid assets. It’s also important to note the difference between the two.
Leasing refers to paying rent for a determined period to be able to use a piece of equipment. The lender buys the equipment, rents it out, and may also charge interest rates for maintenance.
On the other hand, a hire purchase is a way to acquire an asset bought by a lender through monthly payments. At the end of the contract, you may need to settle a minimal fee for the transfer of title.
In Summary
Different loans for agriculture businesses are available for farmers to help them throughout their farming journey. Farm ownership loans, equipment loans, livestock financing, asset financing, and leasing and hire purchases are uniquely designed to fit the different needs of farmers. For farmers that go through financial struggles, debt restructuring helps provide lighter payment terms, so they can get their business back on track.
Do you need loan assistance? We are here to help. Our company offers different loan solutions that help farmers and ranchers achieve their business goals. Whether you need financing or loan restructuring, our team can help you. Talk to us to learn more about our products and services.