Running a farm is no easy feat, especially when it comes to the financial department. From daily supplies down to equipment maintenance, agribusiness owners are often faced with the demands of day-to-day operational costs. Thankfully, there are a variety of financing options that can help keep their business up and running. Agriculture loans are one of them.
How Agriculture Loans Work
An agriculture loan works similarly to other loan types—you send in your application, the lender reviews your qualifications, and if you pass, they lend you a specific amount of money. Repayment terms can last anywhere from three to 40 years, depending on your chosen lender and the type of financing you’re applying for.
Agriculture loans can be acquired from traditional lenders like banks and credit unions or from government agencies like the U.S. Department of Agriculture’s, Farm Service Agency. They are versatile and can be used for a variety of purposes, including:
Purchasing or Expanding a Property
Whether it’s for expanding or buying a new property, Farm Ownership Loans can help you in these aspects. Beyond that, they can also be used for a variety of purposes, like:
- Improvement of farm dwellings, service buildings, and facilities
- Conservation of soil and water
- Payment for loan closing costs
- Purchasing of easement
- Making down payments
Buying Farm Equipment and Supplies
Investing in high-quality and reliable farm equipment is essential to keeping your business afloat. With proper care and maintenance, you’ll find that these machines are more efficient and long-lasting. They can also improve your farm’s productivity rate. The only downside is that these machines are more expensive—that’s where an operation loan can come in handy.
On top of that, this financing option can also be used to purchase daily supplies like feeds, seeds, fertilizer, and pesticides, as well as livestock like poultry and cattle. It can also cover your family’s living expenses, i.e. rent and food supply.
Paying for Operational Costs
Business won’t always be thriving. During low-income periods, an agriculture loan can be used to temporarily pay for operational costs like employee salaries, utility bills, and daily supplies.
Covering Farm Maintenance and Repair Costs
You can increase your farm’s value by using an agriculture loan to keep up with regular maintenance and make necessary land improvements. This is especially helpful if you’re planning on selling your property in the future. A few ways you can do this are by investing in tile drainage to avoid flooding, conserving soil and organic matter, increasing soil fertility, and improving your farm’s general appearance.
When running a farming business, you always need to be prepared for the worst. You’ll encounter a lot of hurdles that can greatly affect your revenue—drought, typhoons, floods, locust infestations, you name it! The good news is that you can always apply for an agriculture loan to help pay for the repair and operational costs.
How to Qualify for an Agricultural Loan
Requirements will vary depending on two major factors: the type of agriculture loan you’re applying for and your chosen lender. But to give you an idea, we’ve rounded up some documents that you might need to prepare:
- Income tax returns for the past 3 years
- Proof of income, debts, and assets, i.e. your latest bank account and credit card statements
- Identification card showing your legal name, i.e. green card and driver’s license
- Copies of property lease, agreements, contracts, etc.
Additionally, you must also meet certain eligibility requirements, like:
- An acceptable credit standing
- Having no federal or state convictions
- Must be a U.S. citizen, non-citizen national, or a legal resident alien of the United States
- Must be able to display a capability to meet loan repayments
Much like any type of financing option, agriculture loans entail a huge financial responsibility. That’s why it’s important to map out your budget and determine how a loan will fit into your business goals. If it’s your first time applying for one, don’t shy away from the different resources available around you—consult financial advisors, reach out to different lenders, talk to experienced colleagues, and so on. With these simple steps, you are sure to find a financing option that can help grow your agribusiness!