What Is an Agriculture Loan?

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An agriculture loan is a form of funding credited to farmers and ranchers by private lenders or the government. It can be used for a variety of purposes, including purchasing land, buying equipment, paying for emergency expenses, and refinancing existing loans.

What Are the Different Types of Agricultural Loans?

The type of loan you apply for will depend on your purpose. It’s always wise to consult an expert if you’re not sure which one is best for your business. In the meantime, here are some things you need to know about the different kinds of agricultural loans.

  • Operating Loan – this can help cover operating costs like buying fertilizers, seeds, pesticides, and animal feed. It can also assist farmers and ranchers with their day-to-day living expenses. 
  • Equipment Loan – this type of loan can be used to purchase heavy equipment such as tractors, grain bins, bulldozers, and harvesters. 
  • Livestock Loan – this option is great for individuals who want to venture into poultry or dairy farming. It can be used to purchase livestock like cows and chickens. 
  • Emergency Loan – in cases of natural calamities like flood and drought, farmers and ranchers can use this to recover from production and physical losses.
  • Farm Ownership Loan – this can be used to acquire or expand a farm or ranch. It can help pay for expenses like the construction of new buildings and the conservation of water and soil resources. 
  • Microloan – this is suitable for farmers with small businesses and those engaging in non-traditional operations and direct selling like farm trucks and farmers’ markets. It works similarly to operating and farm ownership loans but with less stringent requirements and an easier application process. 
  • Youth Loan – young people between 10-20 years old can apply for this loan. It can be used to fund agriculture-related projects. However, a recommendation from a project advisor is needed to qualify for one. 
  • Native American Tribal Loan – this type of loan assists tribes in starting or expanding a farming business. It can also be used to acquire land within a tribal reservation or an Alaskan native community. 

How Can I Qualify for One?

Different lenders have varying requirements, so be sure to do your research before applying for a loan. You can also check out these helpful tips when applying for one. 

Improve Your Credit Score

Most lenders have a minimum credit score requirement for applicants. If you don’t meet these standards, work on your ratings first. A few ways you could do this include paying off existing credit card debts, making timely payments, and limiting credit applications. 

Apply With a Cosigner

Farmers and ranchers with poor to zero credit history can opt to get a cosigner who will take on the responsibility of repaying the loan in case you miss a payment. This individual must have a good credit standing—usually 670 or above, and a stable monthly income. 

Prepare Your Financial Documents

Lenders will require you to submit your business’s financial documents to help determine if you’re a good candidate. This includes balance sheets, cash flow statements, and bank account balances.  

Prepare a Collateral

Some lenders will require a collateral as security for a loan. This may come in different forms like equipment and inventory. If you fail to meet a payment, the lender will seize the collateral and sell it to cover their losses.

Bottom Line

Before taking out a loan, make sure to consider other types of funding such as grants and sponsorships. Once those have been exhausted, only then should you consider applying for an agricultural loan. Compare the interest rates and payment terms of different lenders. Remember to only take out an amount you can realistically afford. If you have questions or concerns, don’t hesitate to reach out to the financial institution. 

Taking out a loan and incurring debt can be a scary idea. However, with proper planning and preparation, it can take your farm or ranch business to greater heights.

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