Agricultural Loan Products
Agriculture is often referred to as the backbone of America because the industry provides us with food, clothing, and much more. Farmers and ranchers must operate like a business, managing income and expenses. Some of those expenses can be very large. Agricultural loans are vital to financing short and long-term costs.
Some of the expenses that farmers and ranchers may face include land purchases, equipment needs, buying inputs, and upgrading facilities. Here are some of the standard agricultural loan products available for producers.
Real Estate Loans
The average cost of farm real estate is $4,442 per acre and rising. Depending on the tract of land and its use, farmland can sell for up to $19,000 per acre. At a cost that high, the repayment must be spread out over a longer term. Depending on the borrower’s creditworthiness, terms may be as long as 30 years.
Equipment Financing
New pieces of agriculture equipment can have a hefty price tag. Financing farm machinery is similar to getting a car loan. The term for repayment is typically under seven years. Agricultural lenders can finance both new and used equipment.
Operating Loans
Farming is a very cyclical business. Farmers purchase their crop inputs during the winter months. This can include seed, fertilizer, pesticide, and more. They will not see revenue from that crop until it is harvested later that year. An operating loan covers that gap. It acts like a credit card in that a farmer can use the available funds, pay it down when they have money available, and then use it again when necessary. It serves as a safety net.
Intermediate Term Loans
Intermediate term (IT) loans are set up for shorter periods, typically ten years or less. They can be used for less significant expenses, like building a new structure. IT loans can be issued much quicker than traditional loans since the analysis is much less complex.
Leases
Leasing can reduce risk when it comes to the depreciation of equipment or buildings. It provides both flexibility for the borrower and potential tax advantages. Leases can be set up so that the borrower eventually owns the collateral.
Agriculture lending is highly specialized, so you will want to work with an institution that understands your operation. It is often advantageous to work with the same lender over time. They will develop a thorough understanding of your farm and help you make the best decisions for it.
