Not only does running a farm require a lot of hard work and sweat, but it also requires a lot of money. Farmers need expensive equipment, plus plentiful, fertile land that doesn’t often come cheap. Many farmers turn to agricultural business loans to keep their operations running smoothly.
There are a lot of options out there to choose from including bank loans, funding from government agencies, and even online financial options from service providers like Coastal Kapital! In this article, we will show you how to get business loans for agriculture, plus various financing options and resources available for small business owners like you!
How to Get a Farm Business Loan
To qualify for a farm loan, you will need to go through an application process for the loan program you want. Some lenders like to see a business plan as part of this process. Having a business plan gives your lender an idea of just what it is your farming operation does. This helps them decide on whether or not to loan to you.
Let’s explore how to get business loans for agriculture, step by step.
Create a business plan
First things first, you’ll want to come up with an agricultural business plan for your lender to review. It should have the following:
- Executive summary: Briefly describe why your farm or ranch needs the money. Provide a brief background of your agricultural business.
- Company description: Describe your client base and how you want to connect with them. What exactly will your farming operation be doing?
- Operational plan: The operations plan should describe how you intend to carry out your agricultural goals.
- Services: Detail the services you plan to carry out for your potential customers. What needs are you meeting for your clients? Explain how this is a profitable mode of income, including detailed pricing.
- Market analysis: Talk about how you have a competitive advantage in your target market. Give a competitive analysis and price comparisons.
- Management and personnel: Explain how you will hire your farmhands, ranchers, and any other help you may need.
- Sales and marketing strategies: How do you plan to reach new customers? Include your sales strategy. Will you use social media or other marketing strategies to reach your target market?
- Financial projections: Try to predict your state of finances five years ahead. This will give the lender an idea of where your agricultural business is headed financially.
- Funding request: Come up with a specific amount of money you need for business financing. Show the lender how you determined that amount. Include your assets and how much you will be contributing to pay for the needs of your business.
How to apply for agriculture loans
Now that you’ve gotten your agricultural business plan together, it is time to apply for the business loan.
1. Check the requirements: Every lender will have eligibility requirements for each loan program. This will include things like a specified range in credit score, income, and experience in the farming industry. Make sure that you are eligible before you apply for any financing options!
2. Know your loan amount: Take a good, hard look at your finances. What upcoming expenses do you have? How much will you be able to pay and how much will need to come in the form of a loan? Can you afford to put any money down? Be sure to study your financial statements to see how much money you will need to receive in financing.
3. Apply: Whether you are applying at your banking institution, online, or with a government agency, you will need to fill out an application. Be sure to provide your lender with your business plan, as well as any financial documents they ask for. These could include tax statements, balance sheets, bank statements, profit and loss statements, etc.
4. Get a quote: Your lender will give you a quote based on the information you provide them. If the quote is appealing to you, you can proceed with the small business loan. If not, you may want to shop around for other quotes.
5. Review process: The lender will review everything you’ve submitted and go through the underwriting process. He or she will verify your income, assets, debt, and property details to issue final approval on your loan application. Then the loan provider will let you know if you are approved for the loan.
6. Sign the documents: If your lender approves your loan, you will be offered rates, terms, and repayment terms. You will review and sign the loan’s closing documents, which will stipulate where and when the loan proceeds will be disbursed.
Types of Business Loans for Agriculture
The business loan process is pretty simple! But which loan is best for you? We have narrowed down some of the best business loan types for agriculture.
Traditional bank loans
Many people will first make a beeline to their bank for a loan. Since they are already familiar with the financing institution, it makes sense. You can easily get an agricultural land loan from a national bank as long as your credit is good. This ensures you will more than likely get an interest rate that you can afford.
However, keep in mind that these loans typically involve a lot of paperwork, involve longer wait times, and will probably require you to put up specific collateral.
You can’t farm without equipment: tractors, plows, seeders, balers, ATVs, combines, etc. Luckily, whatever you need can be easily paid for with equipment financing. This ensures you have the tools to increase production and make more profit in the long run. At Coastal Kapital, we’ve got options for you like:
- EFA, or equipment finance agreement
- 10% Put option buy
- FMV Lease, or fair market value lease
- $1.00 Buyout Lease
- Average Terms – 24-60 Months
- Amount – $5,000 to $500,000
Sound good? Apply today! It’s easy.
Working capital loans
If you can’t seem to keep up with the day-to-day expenses that halt your cash flow and burden your balance sheet, try a working capital loan. Here at Coastal Kapital, we make working capital loans quick and painless for you with an easier approval process than traditional banks can offer. Options include:
- 3 months to 2 years of short-term micro business loans, with a value of up to $3 million
- 2- to 4-year terms, with a value of up to $500,000, for expansions and inventory
- 2- to 5-year terms for collateral
Use the loan as the first line of defense against crop losses, to pay off accounts payable, to improve farming processes for efficiency, and so much more! Having the day-to-day burdens off your shoulders will give you some extra peace of mind.
Small Business Administration (SBA) loans
SBA offers various loan programs for small rural businesses, including agriculture production. Typical SBA loans for farmers and ranchers are:
- 7(a) Loans: You can use this loan to buy real estate, equipment, inventory, or working capital needs. It may be harder to qualify for this one, but the interest rates are low!
- 504 Certified Development Company (CDC) loan: If you’d like to purchase or renovate real estate, or buy heavy farm equipment, contact your local CDC. This kind of loan includes a competitive fixed-rate mortgage through an approved lender.
- Microloans: If you don’t need a ton of money, go for an SBA microloan. Borrowers can receive anywhere from $500 to $50,000, which is enough to significantly improve your business.
Here at Coastal Kapital, we make SBA loans easy. You can receive a traditional SBA loan for up to 30-year terms, SBA express (which can be underwritten quickly!), or even a line of credit options if you aren’t sure how much you’ll need.
The Farm Service Agency (FSA)
If you are denied by the bank due to bad credit, no worries! There are still plenty of options. There are government agencies set up specifically to help struggling farmers. The USDA Farm Service Agency (FSA) has several loan programs that can benefit you as an agriculture owner.
These loans are either Guaranteed Loans or Direct Loans. Direct Loans come directly from FSA, while Guaranteed Loans come from a traditional lender and are backed by the FSA. Here is a list of FSA loans to consider:
- Farm Operating Loans: If you need to buy livestock, seed, or equipment, you may want to get an operation loan from FSA. Not only can it cover operating costs, but it can also cover family living expenses before a farm becomes fully functional.
- Farm Ownership Loans: Are you looking to buy some land or expand your existing farm or ranch? This kind of loan can help you do that, as well as pay the closing costs, make any improvements on the farm, or fund conservation efforts to protect the soil or water sources. Applicants must have at least three years of experience in a farm or ranch business operation. Additionally, Farm Ownership Down Payment loans require that loan applicants provide 5% of the purchase price of the farm.
- Microloans: Sometimes all you need is a little help in the form of a microloan. Microloans are made especially for farmers operating small farms, or the farmers that are just starting. There are fewer requirements and less paperwork than in other loans. However, the funding will be a smaller amount than other loan programs can offer.
- Youth Loans: There is an operating loan made just for young farmers between the ages of 10 and 20 years old. These are loans assisting with educational agricultural projects in 4-H clubs or FFA organizations.
- Native American Tribal Loans: For Native American Tribes that are looking to acquire land on a reservation or Alaskan native community and raise agriculture, these loans can assist. The objective is to help save the farmland culture for Native American generations to come.
- Emergency Loans: Unexpected emergencies can cause farmers and ranchers to lose crops and livestock. This can be caused by natural disasters like droughts, floods, hurricanes, or tornadoes. If the farm is located in a designated disaster area and has lost at least 30% of a production loan, it can qualify for emergency loan assistance programs.
- Minority and Women Farmers and Ranchers: FSA sets aside part of its funds for minorities and women who are in agribusiness. This allows them the possibility of buying a farm or ranch and putting it into operation.
- Beginning Farmers and Ranchers: FSA also sets aside funds for family farmers who are just starting to operate their farms or ranches.
The National Council of State Agricultural Finance Programs
Each state also offers its financial solutions for farmers. The National Council of State Agricultural Finance Programs has made a handy list for farmers to find loan programs in
Housing and Community Facility Programs
Another branch of the U.S. Department of Agriculture, known as Rural Development, offers Community Facility Programs. These programs include direct loans, loan guarantees, and grants to help ensure that rural America can enjoy the same basic quality of life and services that exist in urban areas by establishing key infrastructure.
There are also numerous Housing Programs available under Rural Development. These programs offer loans to families who want to live in rural areas. There are programs for both single-family and multifamily homes. Multifamily Housing helps subsidize rents for farm labor housing with low-income tenants who can’t afford their rent.
Single Family Housing Programs allow families and individuals the chance to buy, build, and repair homes in the countryside. This is your chance to live in a rural area and run a family farm! There are also refinance options available. Eligibility is based on income and will vary depending on the median income for the area you are looking to move to.
But before you sign your loan documents, make sure you know and understand the full details. There may be hidden costs involved.
Farm Loans are No Sweat
Whatever loan option you choose should be based on your business needs. After you’ve decided on the most suitable loan program for you, all you have to do is check that you meet the requirements, know your loan amount, apply, get a quote, and sign the documents!
Getting an agricultural business loan with Coastal Kapital will keep the sweat on the farm, and not on your pocketbook.