Farm Loans | Bankrate

With inflation and market volatility impacting agricultural necessities like labor, seed, fertilizer and fuel, many farmers may need to seek outside financing to start, grow or sustain their business.

According to the Kansas City Federal Reserve, farm debt at farm-specific lenders grew 7 percent in 2024 compared to the previous year. Non-real estate loans grew 10 percent with farm lenders. These numbers suggest that farmers need financing to keep their operations running.

Let’s look in depth at your options for farm loans and how to get the right farm loan for your business.

Farm Service Agency (FSA) loans

Farm Service Agency (FSA) loans are government-backed loans provided to help farmers start or expand their farm’s growth. Farmers may get approved if they can’t get conventional financing elsewhere or if they qualify as socially disadvantaged business owners.

FSA loans come in the form of guaranteed or direct loans. Guaranteed FSA loans are issued through commercial lenders and guaranteed by the FSA for up to 95 percent of the loan amount. Direct loans are funded and overseen directly by the Farm Service Agency.

FSA farm loan types

The FSA offers multiple farm loan programs to help with a variety of funding purposes. Those include:

• Farm ownership loans

  Farm ownership loans help farmers pay for the purchase of their farms, enlarge an existing farm or build new constructions on their property. These loans offer up to 100 percent financing with a maximum of $600,000. You can choose one of three options: regular direct loans, joint financing or down payment loans.For joint financing loans, FSA funds half of the loan while the other half is funded by a lender, the state or the farm property seller. Down payment loans are offered only to beginning or minority farmers, and you must contribute 5 percent of the farm’s purchase cost.

• Farm operating loans

  Farmers can also get farm operating loans to make purchases needed for day-to-day operations. These loans are direct loans offered by the FSA up to $400,000. Purchases must be used for expenses crucial to running the farm, such as farm equipment, livestock, seeding or land development. Farmers can also use the funds to pay for operating costs and personal living expenses during the startup phase of the farm.

• Microloans

  FSA microloans offer funding for farm ownership, minor farm improvements or operating expenses up to $50,000. The microloan program is designed to support first-time farmers or small or unique farming models. For example, Community Supported Agriculture (CSAs), hydroponic or organic farms would fall in the category of nontraditional farms. FSA microloans relax the experience needed to qualify, including making it available to those with no farm management experience (though it may require business experience).

• Native American Tribal loans

  Farmers within Native American tribes can apply for a Native American Tribal loan to finance expanding current farming operations for the purpose of increasing agricultural production, boosting the surrounding community and preserving land. Borrowers can also use a tribal loan for land preservation to relieve tensions among tribes and their members.

• Youth loans

  To support youth agriculture programs and clubs, young farmers between the ages of 10 to 20 can use a Youth loan to buy livestock or equipment or pay for a project’s operational expenses. The purpose of the project should be to gain agricultural experience and produce an income. The youth will need an advisor to sign off on the loan, but they only need a cosigner if they can’t show the ability to repay. The project should generate enough profit to cover the loan and loan costs. Young people can borrow any amount up to $10,000.

• Emergency loans

  Emergency loans are designed to help farmers suffering from financial losses due to natural disasters or emergencies. The farmer must be located in an area declared to have a natural disaster or emergency. The benefit of the emergency loan is that it can be used to pay for production costs as well as living expenses to sustain the farm through the emergency. Loan amounts can cover 100% of production losses but cap at $500,000.

• Targeted loan funding for historically underserved farmers

  Loan funding targeting underserved communities is a designation that farmers select when applying for an FSA loan. The benefit is that the FSA targets a portion of its approvals toward disadvantaged farmers, including women, African Americans and Native Americans. To be considered for the targeted funding, you can voluntarily list your race or gender on the FSA loan application.

• Beginner farmers and ranchers

  Beginner farmers can apply for the Farm Ownership Loans , Farm Operating Loans or farm microloans. Beginning farmers are described as farmers with less than 10 years of experience. They also must own less than 30 percent of the acreage of the average-sized farm in their county.Beginning farmers can also apply for the Direct Down Payment loan to fund the down payment for purchasing a farm or ranch. This program is the only FSA program designed specifically for beginner farmers.

• Conservation loans

  Conservation loans are FSA loans used for conservation projects, including buying conservation structures, installing water conservation, establishing permanent pastures, managing manure and more. You’ll need to create a conservation project plan and get it approved by the Natural Resources Conservation Service (NRCS) to be considered for the loan. You can contact the NRCS staff to help you develop an approved plan.

• EZ Guarantee Loans

  This FSA loan offers up to $100,000 to qualifying farmers, designed for small farms or specialized farms that don’t need large loan amounts. This loan offers a streamlined application process and can be used for farm ownership or operating expenses.

• Storage loans

  The Farm Storage Utility Loan or Sugar Storage Facility Loan can help farmers build farm storage or handling facilities. The Farm Storage Utility Loan offers up to $500,000 for storage facilities and $100,000 for storage and handling trucks. The Sugar Storage Facility Loan offers up to 85 percent of the cost for building or upgrading storage and handling facilities for raw or refined sugar.

• Marketing Assistance Loans

  These loans offer assistance to farmers during harvest, providing cash flow to fund their needs so that they don’t have to sell their commodities during harvest time. The reason for this loan is that commodities typically sell at reduced prices during the harvesting season.

• Loan Deficiency Payments

  This loan is a payment to the producer who would be eligible for a CCC (Commodity Credit Corporation Charter Act) loan, but forgoes the loan in exchange for a payment for their commodity.

• Bankrate insight

  To apply for FSA direct loans, you may want to check your eligibility and use the online loan application. For guaranteed FSA loans, you’ll need to contact your local service center to start the application process.

Current FSA loan interest rates

If you plan to apply for an FSA loan, check out the current FSA farm loan rates, which are updated on the FSA website. The current rates for different FSA loans are:

*These rates are current as of June 5, 2024

Other farm loans to consider

Aside from FSA loans, you can also get farm loans from lending institutions that specialize in this type of loan. Compare the farm loans below and their features to decide which one is right for you.

Farm Credit

Farm Credit is a network of lending institutions that provides loans in all 50 states and Puerto Rico. Since borrowers become part owners, these cooperative-owned institutions prioritize customers over profits, helping to make Farm Credit the largest single agricultural lender in the U.S. In 2024, Farm Credit returned over $3 billion to its customers and has continued to do so since 2012.

Farm Credit has over 600,000 customers across four districts. Each district has a wholesale bank that provides funds to the cooperative institutions. Farmers, farmer-owned cooperatives, agribusinesses as well as homebuyers and infrastructure providers in rural communities may be able to qualify for Farm Credit loans. There are several types of loans and services depending on the lender you choose.

Farm Plus Financial

Farm Plus Financial is a national farm and land lender offering a suite of services at farmers’ disposal. Its seven loan options include term loans and lines of credit. Loan amounts range from $200,000 to $50 million and can typically take anywhere from one to three months to fund. The lender does have some expedited lending programs that can approve loans in as little as 72 hours.

Its basic loan requirements include:

• 660 personal credit score
• 75% loan-to-value ratio
• 50% LTV for lines of credit
• Property of at least 5 acres

American Farm Mortgage & Financial Services

American Farm Mortgage & Financial Services was founded in 1989 and is a subsidiary of Legence Bank, which has been around since 1906. The lender offers six types of loan products, including agricultural real estate loans, recreational land loans and FSA-guaranteed loans. If you need quick financing and have a credit score of at least 720, you may qualify for the AgXpress loan, which can be approved in one business day or less. The lender also offers agriculture leasing to help farmers cover machinery and equipment costs.

What is a farm loan?

A farm loan is a business loan specially designed to meet the unique needs of the agricultural community. Loans can be used to purchase, run or expand a farm or agricultural business. You can get farm loans through traditional banks and credit unions, though some specialize in farm loans, offering expert advisors, appraisers or other services.

Farm loans can come in the form of term loans, real estate loans for the farm or land or business lines of credit. Specialized lenders may also offer loans designed for beginner farmers.

What can an agricultural loan be used for?

Lenders offer different agricultural loans to meet a variety of purposes, though some loans may be designed for specific uses. You can use agricultural loans for:

• Buying a farm or land
• Assisting with down purchase or closing costs
• Purchasing equipment, livestock or seed
• Expanding business operations
• Constructing a new building on existing land
• Irrigation or conservation projects
• Crop losses and natural disasters
• Operating expenses like marketing

How to get a farm loan

To get a farm loan, you’ll need to research all your options to find the best funding option to meet your needs. Where to start when comparing farm loans:

1. Determine how much funding you need

Before searching for a farm loan, take stock of the types of purchases you need to make and the capital you have on hand. Lenders may require a down payment. Any amount you apply toward the loan upfront will reduce the loan amount and payments. You’ll want to tally the total purchases (or losses for emergency loans) to determine the needed loan amount.

2. Compare farm financing options

Lenders offering farm loans may offer specialized products and services to support farmers. Each lender will differ in the exact products, so you’ll want to carefully compare each lender’s options.

For example, some lenders offer FSA-guaranteed farm loans, farm real estate loans or agricultural leasing. Lenders may also offer express loans to speed up approvals for qualified applicants.

3. Choose and apply for a farm loan

Next, you can select a financing option that matches your business growth strategy and apply for the loan. You may want to lean on a loan specialist or FSA representative to work through the complexities of your business.

You can then gather the information needed to complete an application. Each lender will give its own documentation list, often on its website.

• Examples of documentation

  • Explanation of farming experience
  • Business tax returns
  • Business bank statements
  • Balance sheet
  • Business plan
  • Proof of property ownership
  • Lease documents, including farm, building or land leases
  • List of equipment
  • Appraisals for equipment or property
  • Personal financial statements
  • Outstanding debts

Alternatives to farm loans

To finance farm operations and expenses, farm loans aren’t your only option. You might consider these sources if you don’t meet farm loan qualifications or a specialized loan isn’t ideal for you.

SBA loans

Similar to FSA loans, you can get funding through a loan program overseen by the Small Business Administration (SBA). SBA loans are offered through approved lenders and partially guaranteed by the SBA.

Lenders can offer a number of SBA loans, including:

• 7(a) loan: Its most commonly used program, the SBA 7(a) loan offers high loan amounts up to $5 million to help small businesses get the working capital needed for growth.
• 504 loan: The SBA 504 loan helps small businesses get funding for new equipment or property or building construction projects up to $5.5 million. The loan must be used for property that expands the business.
• SBA microloans: Similar to the FSA microloan, these loans offer loan amounts up to $50,000 through microlenders. Lenders are often nonprofits that work with disadvantaged business owners. They may relax requirements to apply, such as accepting bad personal credit scores or startups.

Business grants

You may want to apply for a business grant if you can’t qualify or don’t have the business stability to repay a loan. The federal government, including the U.S. Department of Agriculture, provides a variety of agricultural grants and assistance programs.

These grants can meet financing needs for beginner farmers, farmer’s markets, organic producers and more. Farmers can also look for grants through state or local governments. You may find grant listings and requirements online through your state’s agricultural departments. Or you can learn about local funding resources through your local Small Business Development Center.

Small business loans from banks and credit unions

You could qualify for a conventional business loan, usually if you have strong credit, multiple years in business and established revenue. Through traditional banks and credit unions, farmers can typically meet with a representative for loan guidance at brick-and-mortar locations. Banks and credit unions tend to offer multiple loan products to match different lenders’ needs.

Small business loans from alternative lenders

Small businesses that don’t qualify for loans from traditional lenders can turn to alternative lenders to receive funding. Alternative lenders can include online lenders, loan marketplaces and lenders offering nontraditional business loans like invoice financing. These lenders tend to relax loan requirements, accept bad credit or offer fast or short-term business loans. However, you may pay more in interest and fees with these lenders.

Bottom line

The farming industry faces a variety of challenges that require business loans to purchase land or equipment, construct buildings or supplement cash shortages. Farm loans offer the ability to narrow in on different farming needs through loans specialized in these areas.

But every lender and farm loan provides its own set of requirements, including farm management experience and personal and business financial stability. Farmers would do well to compare a variety of lenders and loan types, including government-backed FSA loans.

Frequently asked questions

• Can I borrow money to start a farm?

  You can get a farm loan to start a farm, but you may have to get a specialty loan designed for beginner farmers. The FSA offers loans to startups if you can’t find funding elsewhere. These loans may come with farm management or education requirements in order to qualify.

• Are agriculture loans hard to get?

  Most agricultural loans have a long list of requirements and documentation that small businesses must meet. But lenders may offer multiple paths to getting approved, such as meeting experience or education criteria. Some farmers will need to pursue alternative sources of financing if they don’t meet these requirements.

• Are USDA farm loans worth it?

  USDA farm loans are helpful for farmers who can’t qualify for financing through conventional lenders. The U.S. Department of Agriculture issues loans through its Farm Service Agency (FSA), either directly or through qualified lenders. These loans tend to offer low interest rates, helping you keep borrowing costs low.

• Who is eligible for an FSA loan?

  Farmers will need to meet a variety of criteria to get approved for an FSA loan. You can be a beginner or experienced farmer but should struggle to qualify for a conventional business loan. You also need to have acceptable credit and the ability to repay the loan, among other criteria listed by the FSA.