Running a farm or agricultural business isnât without its challenges. While the agricultural industry has its own unique hurdles to overcome, thereâs one challenge farmers, ranchers, and other entrepreneurs in the industry face just like any other business owner: financial issues and the need for capital.
Owning and operating a farm, ranch, or agricultural business comes with hefty expenses — expenses that a business owner often canât face alone. From purchasing heavy-duty farming equipment to buying land to hiring employees, these expenses can pile up quickly, leaving even the most prepared small business owner struggling to stay afloat.
If youâre in the agricultural industry and youâre facing a financial burden, know that there are options available to you. Read on to learn more about agriculture and farm financing options, how to qualify, and which type of financing is best for your financial needs.
Government Programs For Agriculture & Farm Financing
The United States Department of Agriculture, or USDA, is a federal government department that manages programs in the areas of food, nutrition, natural resources, rural development, and agriculture. The USDA has 29 different agencies, including the Farm Services Agency, which provides resources for business owners in agricultural and farming industries. One of the primary resources provided by the FSA is low-cost loan programs.
There are several loan programs available to fit the needs of new and established farming and agriculture businesses.
The FSAâs Direct Farm Operating loan program provides loans for starting or operating a farm or ranch. This program provides up to $300,000 for reorganizing a farm, purchasing livestock, buying farm equipment, and paying for operating expenses. Proceeds can also be used toward the improvement or repair of buildings, land and water development, and refinancing farm-related debt.
The FSA also has microloan programs targeted at beginning farmers and farmers that operate non-traditional farms. The Direct Farm Ownership Microloan provides up to $50,000 for down payments on land, soil and water conservation projects, and the construction, repair, or improvements of farm and service buildings and dwellings.
Direct Farm Operating Microloans provide up to $50,000 for use toward tools, fencing, equipment, irrigation systems, and other operating expenses.
The FSAâs Direct Farm Ownership loan is another option for farmers. This loan is available up to $300,000. Through this program, the FSA provides up to 100% financing for the purchase or expansion of farms.
There are two additional loans available through the FSAâs Direct Farm Ownership program. The Direct Farm Ownership Joint Financing loan gives up to 50% of the cost or value of purchased properties, with maximum borrowing amounts capped at $300,000. The remaining balance is financed by a traditional lender, state programs, or the seller of the property.
The Direct Farm Ownership Down Payment loan is available to new farmers and ranchers, women, and minorities. Through this program, borrowers receive up to 45% of either the purchase price, appraised value, or $667,000. Borrowing limitations are based on the lesser amount of the three options. All borrowers must pay 5% of the purchase price to receive this loan.
The FSA also has Guaranteed Farm Loan programs that make it easier for farmers and ranchers to receive loans through commercial lenders. Through these programs, the FSA will guarantee up to 95% of a loan, putting less risk on the lender and increasing the borrowerâs chances for approval. The FSA guarantees up to $1.429 million for farm ownership, conservation, and operating loans. For land contracts, up to $500,000 is guaranteed.
Finally, the FSA offers the Emergency loan program. Through this program, up to $500,000 is available to cover expenses following a disaster such as a flood, tornado, or drought. Loan proceeds are used toward the restoration or replacement of property, covering production costs or living expenses, reorganization of operations, and refinancing of non-real estate debt.
Government Farm Loan Rates & Fees
The rates and fees associated with receiving a government farm loan vary based on the type of loan selected.
For the Direct Farm Operating loan, terms range from 12 months for general operating and living expenses up to 7 years for repairs, equipment, or livestock purchases. Interest rates are set by the FSA, which posts updated rates on the first day of each month. As of November 2018, rates for Direct Farm Operating loans are 3.75%.
Direct Farm Operating Microloan repayment terms are based on the purpose of the loan. Operating and living expenses are repaid within 12 months, while equipment or livestock purchases come with repayment terms of 7 years. Interest rates are 3.75%.
Direct Ownership Microloans have maximum repayment terms of 25 years and interest rates of 4.125%.
The Direct Farm Ownership loan and the Direct Farm Joint Financing loan each have maximum repayment terms of 40 years. Interest rates for both loans are 2.5%. For the Direct Farm Ownership Down Payment loan, repayment terms are 20 years. The portion of the loan not financed by the FSA is required to have a minimum 30-year repayment period. The interest rate is 1.5%.
The repayment terms for FSA Emergency loans are based on the loss and the borrowerâs ability to repay. At least one payment per year must be made by the borrower. If funds are used for operating expenses, repayment terms are 12 months, but an 18-month extended repayment period is available. The interest rate for these loans is 3.75%.
If a borrower receives a Guaranteed loan through an FSA-approved commercial lender, repayment terms are based on the type of loan, collateral, and the borrowerâs ability to repay. Generally, Operating loans have a 7-year repayment term, while maximum terms for Farm Ownership loans max out at 50 years. Interest rates are set by the lender but may not exceed the FSAâs maximum rates.
What You Need To Qualify For A Government Farm Loan
For all government farm loans, borrowers must be a citizen, non-citizen national, or legal resident alien in the U.S. and specific U.S. territories. All borrowers must be unable to obtain credit from other lenders before applying for an FSA loan. Borrowers must not be delinquent on federal debt, with the exception of IRS tax debt.
All borrowers must also have no previous debt forgiveness from the FSA. Potential borrowers with Federal Crop Insurance violations are not eligible for FSA loans.
All borrowers must also have sufficient credit history. The FSA does not use credit scores but instead looks at a borrowerâs past repayment history with creditors and the federal government. A lack of credit history, isolated incidents of slow payments, or adverse issues that were out of the borrowerâs control will not automatically disqualify the borrower.
To qualify for an FSA Microloan, all borrowers must have 3 years of farm management experience acquired within 10 years of the date of applying for the loan.
For some loans, collateral is required. For FSA Operating Microloans, a lien on farm property or agricultural projects totaling 100% to 150% of the loan amount is required. For Direct Farm Ownership Microloans, the real estate that is purchased or improved with loan proceeds serves as the collateral.
To receive an emergency loan, additional information is required. Borrowers must apply within 8 months of the date the disaster was declared, submit declinations of credit from commercial lenders, and obtain crop insurance for the coming year to receive the loan.
Grants For Farm & Agriculture Businesses
A grant is moneyÂ given — not loaned — by the government or other organizations to fund a project, start a business, and provide other benefits to farm and agriculture businesses.
The USDA offers Farm Labor Housing Direct Loans & Grants. Funding from this program is used to develop housing for farm laborers when commercial credit canât be obtained. Funds can be used to construct, improve, repair, or buy housing for domestic laborers. Funds can also be used to buy and improve land, purchase furnishings, or pay construction loan interest. Eligible applicants can receive a need-based grant that pays up to 90% of project costs. Applicants can apply through the USDA website.
The USDA also offers Value Added Producer Grants, which are used to expand marketing opportunities, create new products, and boost income. This program has working capital grants up to $250,000 and planning grants up to $75,000. Beginning or socially-disadvantaged farmers and ranchers and small- or medium-sized farms may receive priority for these grants. Applicants can apply through the USDA website.
Sustainable Agriculture Research & Education, or SARE, offers sustainable agriculture grants nationwide. Farmers and ranchers can submit a grant proposal to receive thousands of dollars in funding for their project. Grants have been awarded in the past surrounding topics including pest management, livestock production, soil quality, marketing, and energy. Applications can be submitted through the SARE website.
Grants are also available at the state level. Applicants can visit their stateâs Department of Agriculture website to learn more about grant opportunities, how to apply, and eligibility requirements.
Alternative Loans & Financing For Agriculture Businesses
If you donât qualify for a government loan or grant, there are financing options available for you. If you need money quickly, have a low credit score, or have specific needs that arenât met with government grants and loans, alternative lenders provide several loan options for farmers and ranchers.
To keep your farm, ranch, or agriculture business running smoothly, you need the right tools and equipment. Backhoes, bailers, tractors, and other heavy equipment come at an expensive price â a cost that isnât financially feasible for most farmers or ranchers. Whether youâre upgrading old equipment or adding more to keep up with your expanding business, an equipment loan makes these purchases more affordable.
An equipment loan is used to purchase equipment and tools needed for your business. With an equipment loan, you can buy the equipment you need and put it into use immediately without having to pay the full price up-front. Instead, youâll pay through affordable scheduled payments spread out over time.
Depending on your creditworthiness, a down payment of 10% to 20% of the full purchase price is required. Borrowers with high credit scores may qualify for $0 down payment options. Once the down payment is paid, the lender provides the remaining funds. A weekly or monthly payment is made toward the balance, plus any interest charged by the lender. The equipment purchased with loan proceeds is typically your collateral. In most cases, you donât need additional collateral, but a blanket lien or personal guarantee is usually required.
Our Top Pick: Lendio
Lendio is a loan aggregator that connects borrowers with multiple lenders via a single application. Equipment financing is just one loan product offered through Lendio. Through Lendio, you can apply for $5,000 to $5 million to purchase equipment. Loan terms are between 1 and 5 years. Interest rates for the most creditworthy borrowers are 7.5%.
The application process takes about 15 minutes, and you can receive funding in as little as 24 hours. Loans can be used to purchase heavy equipment, office furniture, software, vehicles, and more. To qualify through Lendio, you need at least $50,000 in annual revenue, a credit score of at least 650, and a time in business of at least 12 months. If your credit score is below 650, you may qualify with a lender based on cash flow and revenue from the last 3 to 6 months.
Business Credit Cards
Recurring monthly expenses or emergencies
A business credit card is always a good financial resource to have on hand. With a business credit card, youâll be able to purchase supplies, pay operating expenses, or cover an emergency expense without waiting for a loan approval. Once approved, youâll be able to use your card immediately anywhere credit cards are accepted.
After using your card, youâll make payments each month toward your balance and interest. As you repay your balance, these funds are available to use again. Many business credit cards also have rewards programs. By responsibly borrowing and paying your balance off as quickly as possible, you can rack up points to use toward cash back, flights, hotels, and other rewards.
Our Top Pick: Chase Ink Business Unlimited
Chase Ink Business Unlimited
15.24% – 21.24%, Variable
Chase Ink Business Unlimited is a business credit card for borrowers with good to excellent credit history. This card boasts multiple benefits, including no annual fee and introductory APR of 0% for the first 12 months.
The Chase Ink Business Unlimited card also has a rewards program that gives you 1.5% cash back on all purchases. The card has variable APR of 15.24% to 21.24% and has a bonus offer of $500 cash back after spending $3,000 within the first 3 months of opening your account.
Purchasing supplies or inventory
With an installment loan, you receive a lump sum of money that is repaid through scheduled installments. Repayments may be daily, weekly, or monthly based on the lender you select. Loan proceeds can be used for any business purpose, including purchasing supplies or inventory, buying livestock, or using the funds as working capital. Installment loans are best if you know the specific cost of your expense. If you are unsure of how much money you need, consider a more flexible option like a line of credit or business credit card.
The repayment terms, interest rates, and fees vary by lender. The most creditworthy borrowers typically receive the lowest rates and best repayment terms.
Our Top Pick: Fundation
Fundation provides installment loans of between $20,000 and $500,000 for qualified borrowers. Repayment terms are between 1 and 4 years with interest rates between 7.99% and 29.99%. Payments toward the loan and interest are made monthly.
To qualify for a Fundation installment loan, you must be in business for at least 2 years. Your annual revenue must be at least $100,000, and you need a credit score of at least 660 to receive this loan.
Working capital needs and seasonal gaps in revenue
When you apply for a short-term loan, youâll receive one lump sum that will be repaid back over a shorter period of time. While most short-term loans have repayment terms of one year or less, some alternative lenders offer terms up to 3 years.
Short-term loans are repaid through daily, weekly, or monthly payments. In addition to paying off the principal balance, youâll also pay what is known as a factor rate instead of interest. This fee is calculated into the cost of the loan.
Short-term loans are a good choice for farmers, ranchers, and other business owners because they are quick and easy to receive. Short-term loans are available for any business purpose, but because they can be funded quickly, they work well for working capital, to fill seasonal revenue gaps, or to cover an emergency expense. Alternative lenders offer more options than ever, so you can find the financing you need regardless of credit score, annual revenue, or other challenges.
Our Top Pick: OnDeck
OnDeck offers short-term loans up to $500,000. The factor rate for OnDeck loans is between 1.003 to 1.04 per month. A one-time origination fee between 2.5% and 4% of the total loan amount is charged.
To qualify for an OnDeck loan, you must be in business for at least 1 year and have annual revenue of at least $100,000. The minimum credit score required is 500, but the lender reports that most business owners have credit scores of 660 or higher.
If an OnDeck short-term loan doesnât fit your needs, the lender also offers lines of credit up to $100,000 with APRs as low as 13.99%.
Lines Of Credit
Businesses that need a flexible financing option
Sometimes, you need money and you need it right away. In these situations, waiting days or even weeks can be a struggle. Instead of pursuing a loan that requires lengthy application and underwriting processes, apply for a line of credit that you can access whenever you need extra money.
A line of credit is a type of revolving credit that allows you to make multiple draws as needed. Once approved for a line of credit, youâll receive a credit limit. You can request any amount of money up to and including this credit limit. Funds are then deposited to your business bank account â often within one business day. Interest or fees apply to the funds that have been used. As you pay down your balance, the funds are available for you to use again, similar to a credit card.
Our Top Pick: FundBox
FundBox offers lines of credit up to $100,000. Repayment terms are 12 or 24 weeks. Fees begin at 4.66% and are paid along with your balance through weekly payments. There are no prepayment penalties, and paying off your loan early helps you save on fees.
Approval and credit limits are determined by the health of your business. The application process takes about 10 minutes, during which youâll connect your business bank account and accounting software. Once approved, funds are available immediately and can be deposited into your bank account as soon as the next business day.
Real Estate Loans
The purchase of commercial real estate property or land
Your farm or ranch is prospering, and itâs time for an expansion. The only problem is you donât have the funds to purchase real estate or land. Instead of taking on this financial burden yourself, make the smart move and apply for a commercial real estate loan.
A commercial real estate loan is used for commercial property or land. After paying a down payment that is typically 10% to 20% of the total purchase price, your lender provides the remaining funds. You can use the land or property immediately while repaying the principal balance and interest over several years. The real estate purchased with loan funds is the collateral for the loan.
Our Top Pick: SmartBiz
The Small Business Administration offers affordable and flexible loan options for entrepreneurs and business owners, but navigating the application process is difficult for many. SmartBiz is a lender that takes the guesswork out of SBA loans.
Through SmartBiz, you can apply for an affordable SBA 7(a) loan to purchase commercial real estate. Loan amounts of $500,000 to $5 million are available. SmartBiz offers fixed and variable interest rates between 6.75% to 8% with repayment terms up to 25 years. Loans can be closed as soon as 30 days after approval.
To qualify, at least 51% of the property must be owner-occupied. You must be in business for over 2 years and have a minimum credit score of 675. You must sign a personal guarantee and pay fees including a guarantee fee, packaging fee, and closing costs. A down payment of 10% to 20% is required.
What To Consider When Choosing A Lender
Choosing a lender and the right loan product for your farm, ranch, or agriculture business doesnât have to be complicated. Ask yourself a few important questions to narrow down which lender to select.
How Much Money Do I Need?
Before you apply for a loan, calculate how much money you need. Your lender will want to know how much you are requesting, and this will also help you choose which lender to work with. If you need $250,000, a lender with maximum loan amounts of $100,000 wonât be a good fit. Understand how much you need — and how much you can afford — before choosing your lender.
How Will I Use The Loan?
How you plan to use your loan proceeds can help you determine the best lender for your situation. Some lenders have restrictions on how loans are used. For example, an equipment loan can only be used for the purchase of tools or equipment. If you need money to use as working capital, another loan option — such as a short-term loan or line of credit — would best fit your financial needs.
Do I Meet All Lender Requirements?
All lenders have different requirements based on their own policies as well as the types of loans offered. Understand a lenderâs requirements before applying, and make sure you meet all of them. Remember, many lenders consider time in business, creditworthiness, and annual revenues. Evaluate your revenue and time in business and pull your free credit score online before applying for a loan.
What Youâll Need To Apply For A Farm Loan
The documentation and information requirements for a farm loan are based on the type of loan you’re pursuing. For all loans, you will provide basic information about yourself and your business, such as your legal name, business name, address, phone number, social security number, and federal tax ID.
You will also need to prove that you are creditworthy and have the means to pay back the loan. Additional documentation to receive a farm loan may include:
- Business & Personal Bank Statements
- Income Statements
- Business & Personal Tax Returns
- Balance Sheets
- Profit & Loss Statements
- Business & Personal Credit Scores
An application and all information and documentation must be submitted to your chosen lender. Underwriting and approval times vary based on the loan selected. Real estate loans and government farm loans may take several weeks or longer, while some alternative loans are approved instantly. To make the loan process more efficient, make yourself available to answer questions or provide additional information as needed. Learn more about the requirements for receiving a business loan.
Running a farm, ranch, or agriculture business is never easy, but itâs nearly impossible without adequate capital. The great news is that with so many government loan, alternative loan, and grant options, there is funding available for any purpose. As a responsible business owner, itâs your job to understand how much you need and can afford, do your research, and shop for the most affordable funding options. Once you do, youâll be on the path to receiving the funding you need to help your business prosper.
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