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Farm Financing Guide

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like Banks.com, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated December 21, 2023​

6 min. read​

Need a loan for your agricultural business? There are several forms of financing to choose from, and you may qualify for free forms of funding as well. But if you aren’t quite sure where to start on your quest for financing, don’t worry.

This guide explores farm financing in greater detail, explains why it’s essential for your business and takes a closer look at the various options available to you. Plus, you’ll discover what’s needed to apply for farm financing and tips to help boost your approval odds.

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Why Farm Businesses Need Business Funding

There’s a laundry list of reasons why you may need funding for your farming business. Below are some of the most common reasons.

Investing in Farmland and Expansions

To grow your farm business, you may need funding to acquire additional land or enhance existing property. The financing can help you buy a farm or ranch, enlarge an existing operation or even make a down payment on a piece of land to foster expansion.

Purchasing Fertilizer and Other Supplies

You’ll need to invest in necessary supplies like fertilizers, seeds and pest control products to maintain the productivity of the farm. These expenses can add up quickly, and business funding can provide the means to purchase them in a timely manner.

Buying/Leasing Farm Equipment and Machinery

Modern farm equipment can be expensive. Still, it’s essential for running a successful farm business. Getting funds through loans can help you buy or lease necessary equipment that will improve the efficiency of your operations.

Increasing Farm Yield

Investing in advances like modern irrigation systems, advanced planting techniques, or genetic engineering can also help you increase your farm yield. With additional funding, you can invest in these technologies and take advantage of their benefits, which in turn boosts your overall output.

Hiring Farmhands and Other Employees

Running a farm can be labor-intensive, and at some point, you may need to hire additional help. This could include farmhands, managers, or other workers. A loan can provide the funding you need to cover salaries for your employees, ensuring your farm operates smoothly.

Getting an Insurance Plan

Unexpected events like natural disasters and crop failures can severely impact your farm’s operations. Business funding can help you acquire appropriate insurance plans to protect your farm’s assets and mitigate the potential impact of such unpredictable situations.

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Preparing for Seasonal Volatility

Farming can be financially challenging due to seasonal fluctuations. To ensure your farm stays afloat during these difficult times, it’s pertinent to have funding available to cover operational costs.

Enhance Sales and Marketing

Selling your farm products to a broader market can help you grow your business. By investing in funding for marketing and sales, you can take advantage of opportunities to promote your products, reach new customers and expand distribution channels.

Types of Farm Financing

Farm financing can be crucial for farmers and ranchers as it helps in managing their daily operations, equipment purchases, and land acquisitions. There are several options available to suit the financial needs of your farming business.

Traditional Banks and Loans

Banks and credit unions are common sources of funding for agricultural businesses. Many traditional financial institutions offer specialized farm loans and financing options tailored to the agricultural sector. Typically, these loans include Farm Ownership Loans, operating loans, and equipment loans.

Pros:

  • Specialized Financing: Traditional banks and credit unions provide specialized farm loans and financing options tailored to the unique needs of agricultural businesses, including Farm Ownership Loans, operating loans, and equipment loans.
  • Loan Guarantees: Some banks collaborate with the USDA’s Farm Service Agency (FSA) to offer loan guarantees, reducing risk for both the borrower and the lender, potentially making financing more accessible.

Cons:

  • Stringent Qualification Criteria: Qualifying for a loan from traditional banks typically requires a good credit score, satisfactory financial history and collateral, which may pose challenges for some agricultural businesses, especially smaller or newer operations.
  • Limited Flexibility: Traditional banks and credit unions may have less flexibility in accommodating the specific needs and circumstances of agricultural businesses, potentially leading to constraints in accessing tailored financial solutions.

Government Programs

The FSA, a department within the USDA, provides various loan programs for farmers, such as Direct Farm Ownership Loans, Farm Operating Loans and Microloans. These programs cater to farmers with different financial needs and may require less paperwork, simplifying the application process.

Pros:

  • Tailored Loan Programs: The FSA offers various loan programs, such as Direct Farm Ownership Loans and Microloans, tailored to meet the diverse financial needs of farmers.
  • Inclusive Support: The FSA reserves specific loan opportunities for groups like beginning farmers, socially disadvantaged farmers, and Native American tribal communities, promoting inclusivity in accessing financial resources.

Cons:

  • Bureaucratic Hurdles: While the FSA’s loan programs may simplify the application process in some cases, bureaucratic hurdles and administrative requirements could still pose challenges for farmers.
  • Limited Availability During Crises: The availability and disbursement of emergency loans managed by the FSA may not always align with the immediate needs of farmers during natural disasters or economic crises, potentially impacting timely recovery efforts.
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Agricultural Grants

You can also explore the possibility of obtaining agricultural grants from federal and state governments. Grants are generally non-repayable funds and can provide you with financial assistance for research, development or environmental conservation projects. Grants are often competitive, though, and may have strict eligibility criteria.

Pros:

  • Non-Repayable Funding: Agricultural grants from federal and state governments typically do not require repayment, offering financial assistance for research, development or environmental conservation projects without adding to the recipient’s debt burden.
  • Support for Projects: These grants can provide crucial financial support for agricultural initiatives, fostering innovation, sustainability and environmental conservation within the industry.

Cons:

  • Competitive Nature: Agricultural grants are often competitive, with a limited number of recipients selected from a pool of applicants, potentially making it challenging for all eligible projects to secure funding.
  • Strict Eligibility Criteria: Grants may have stringent eligibility criteria, which could limit the accessibility of funding for certain agricultural projects, particularly those that may not fully align with the specific requirements outlined for the grants.

Private and Online Lenders

Private and online lenders can be another option for farm financing. Online lending platforms have increased accessibility to funding, as they usually offer a streamlined application process and faster approval times.

Pros:

  • Increased Accessibility: Private and online lenders offer increased accessibility to farm financing, providing a streamlined application process and faster approval times compared to traditional lending institutions.
  • Tailored Financing Options: Some private lenders specialize in serving agricultural businesses, offering flexible loan terms, lower interest rates, or alternative collateral, potentially providing tailored financial solutions to meet specific needs.

Cons:

  • Higher Interest Rates: Private and online lenders may impose higher interest rates compared to traditional banks and credit unions, potentially increasing the overall cost of borrowing for agricultural businesses.
  • Potential Risk: Engaging with private or online lenders may pose a higher risk due to varying regulatory standards and potential differences in transparency and accountability compared to established financial institutions.
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How to Apply for Farm Financing

Eligibility Criteria for Farm Financing

Before applying for farm financing, you need to ensure that you meet the eligibility criteria. Some of the factors that could determine your eligibility include:

  • Experience: You should have some experience in farming or a related field to show that you are capable of managing a farm.
  • Credit history: Lenders will look at your credit history to determine your risk as a borrower. A good or excellent credit score can increase the chances of loan approval.
  • Business plan: Having a solid business plan demonstrates that you have a clear plan for your farm’s success. It should outline your goals, strategies, target market and projected financials.
  • Down payment: For certain types of farm loans, you might need to provide a down payment. The amount required varies by the lender and loan program you select.

Necessary Paperwork and Documents

When applying for farm financing, be prepared to provide several documents, including:

  • Personal financial statements
  • Tax returns (both personal and business)
  • A detailed business plan that includes projections and market research
  • Information on the farm equipment and real estate you intend to purchase or use as collateral
  • Proof of farm ownership or lease agreement

Organize these documents and have them ready before approaching a lender to help expedite the process.

Steps to Apply for Farm Financing

Once you have determined your eligibility and gathered the necessary documentation, follow these steps to apply for farm financing:

  • Step 1. Research loan options: Look into the various types of farm loans available to identify the best option for your needs.
  • Step 2. Choose a lender: Find a lender that offers farm financing, such as the USDA’s Farm Service Agency or a private lender.
  • Step 3. Complete a loan application: Fill out the loan application and provide the required documentation. Be sure to double-check the accuracy of the information to avoid an inadvertent denial.
  • Step 4. Submit your application: Submit your completed application and wait for the lender’s decision. They may request additional information or documentation before deciding if they’ll extend funding to you.
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Tips and Strategies for Securing Farm Financing

Improving Your Farm’s Financial Health

Before seeking financing options for your family farm, you should improve your farm’s financial health. Start by creating a budget and closely monitoring your cash flow. This will help you identify areas where you can cut costs and increase revenues. Also, work on paying down existing debt and improving your credit score. A strong credit score increases your chances of securing favorable loan terms for your operation.

Most importantly, maintain accurate and updated financial records. Doing so enables lenders to easily assess your farm’s financial health.

Using Collateral Effectively

Farm assets, such as land, buildings, and equipment, can be used as collateral to secure loans. Remember that the value of your collateral will significantly impact the loan amount you can obtain. So, ensure your assets are well-maintained and provide documentation of their value to lenders.

Building Strong Relationships with Lenders

When selecting a lender, look for one that specializes in agricultural loans, as these institutions understand the unique challenges faced by family farmers and ranchers. Communicate openly and honestly with your lenders about your farm’s financial health, plans, and goals.

Also, be responsive to their requests for information and documentation to demonstrate that you are serious about your operation’s success. Regular communication and timely loan repayments will help you build and maintain a strong relationship with your lender, potentially paving the way for more funding opportunities in the future.

Having an established relationship with a lender can make it easier for businesses to receive additional funding if needed in the future. Fundkite offers revenue-based financing solutions to assist business owners who may have difficulty getting approved for other types of business funding. They will assess your company’s overall financial health to make a lending decision, not just your credit scores like other lenders.

If you want to learn more about this revenue-based business financing, fill out this simple form on the page, and someone from Fundkite’s team will contact you about the next steps.

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