The following article is a guest post.
Being a family farmer can be a tough business to be part of in today’s technological society. Farmers are necessary to give society full access to a variety of produce, meat, and grain products.
If you have chosen this as your career, you already know it takes a lot of hard work and sacrifice, but the rewards can be numerous. One necessity that many farmers require at some point is an agricultural loan.
Here are 12 things you need to know about before you consider applying for a loan to help your farm operation.
1. Credit Score.
Anytime you are considering applying for credit or a loan, you should investigate your credit score. Also known as your FICO score, this is the score that lenders use to determine if you qualify for a loan.
A top score can help you get a lower interest rate on a loan, and a poor score may disqualify you from borrowing money.
2. Credit History.
Borrowers need to also have information about what is actually in their credit file. If you only know the score, you only have part of the story.
In cases where your score is lower than it should be, it helps to understand why. You’re entitled to one free credit report per year, so take advantage of this fact and get a copy.
It’s smart to review your credit file every few months to check for errors. This way, there won’t be any surprises when you’re ready to start your loan application.
3. Financial Status.
Lenders also want to know your financial status before approving you for a loan, so make sure you have information about your farm’s profits and losses before visiting the bank.
Review any information about you and your business’ assets, such as real estate, equipment, inventory, or raw land before looking at loan products.
Calculate your own financial assets, such as savings, retirement accounts, investments, and income to determine which loan may be best for your situation.
4. Down Payment.
Most loans require a down payment, so you’ll also need to research how much is appropriate to put down.
Ideally, you should have a suitable down payment saved already. Some loans require at least 20 percent of the total loan amount to be put down, but you may be able to get a loan with much less than that.
5. Operating Loans.
Once you’ve researched the basics for applying for a loan, then it’s time to think about what kind of loan product you’ll need for your farm.
Farmers have access to a variety of subsidized loan products to help them be more successful in their business.
One common loan type is a farm operating loan. This is a program supported by the USDA to help farmers start a new farm, continue operating, or expand their business.
6. Equipment Loans.
Another possibility for a farm loan is an equipment loan. This is a lending product specifically designed for heavy farm equipment, such as tractors, farm vehicles, grain bins, bulldozers, and more.
You can opt to purchase equipment brand new with your funding or save some money by finding used equipment to purchase.
This type of loan can help a smaller farm compete with larger operations.
7. Livestock Loans.
Your farm could also benefit from a loan designed to support operations that use animals with a livestock loan.
Whether you’re trying to get your start as a dairy farmer, and you need milk cows, or if you want to expand your ranch with additional beef cows, a livestock loan may be the right option.
There are many programs out there that offer farmers competitive rates to help them increase their livestock numbers.
8. Real Estate Loans.
Farmers who need more land or are looking to purchase a farm property can take advantage of an agricultural real estate loan.
In some cases, you can get a lower than average rate to significantly reduce your farm operating costs. If you took out a traditional loan for your farm years ago, you can even refinance down the road with this type of product from companies such as Western AgCredit.
9. Direct Farm Ownership Loans.
If you’ve been farming for years, but you don’t own your own land, you could qualify for a direct farm ownership loan. This is a subsidized program designed to help experienced farmers become landowners.
If you already own an operating farm, you can use this program to help expand your farm and grow your business.
Today’s farmers have much more options than those from the past, and microloans are also something new to consider.
A microloan is best suited to a small, independent farmer. These loans involve smaller amounts of money and shorter repayment timelines.
Microloans are becoming more common in specialty farming sectors. They are also becoming more common in situations where farmers are directly selling to the public, such as farmer’s markets or neighborhood farming cooperatives.
11. Targeted Loans.
The great thing about agricultural loans is that there is often something for almost anyone. Since the government wants to encourage more people to get into this tough industry, there are lots of targeted loans that offer even more incentives to potential farmers.
Young aspiring farmers could get help from youth loan programs, especially if there is a history of commitment to farming organizations like 4-H. Women and minorities also have access to special discount loan programs. Farmers new to the industry may also qualify for special loans with low introductory rates.
12. Emergency Loans.
Life on the farm can be unpredictable, and sometimes, mother nature may make things difficult for you and your farm. In situations such as floods, hurricanes, tornadoes, drought, or other natural disasters, farmers can apply for emergency loans.
Sometimes the local or federal government may provide assistance, but farmers often have a long wait between the disaster and when the money comes in. An emergency loan could help keep the farm afloat during these tough times.
Navigating the available options and information about agricultural loans can be overwhelming. It’s important to arm yourself with knowledge and make your borrowing decision based on what is best for your business’ survival and for your operation to thrive.