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Farm Loans: How They Work

Aerial of farm and farmland

Factors to think about when borrowing funds for the purchase, operation, or expansion of a farm

Financing a farm or ranch can feel overwhelming. Here, we provide an overview to help you evaluate your options for agricultural loans and leases. Of course, there is no substitution for expert insights. Depending on the type of loan you need, you can start an application online when and where it works for you. A financial expert with Farm Credit Services of America will reach out to you to review your needs, answer questions and complete the application process. You also can contact your local Farm Credit Services of America office to get started.

What financing options does Farm Credit Services of America offer farmers and ranchers?

We serve farmers and ranchers in Iowa, Nebraska, South Dakota and Wyoming with these financing options:

  • WorkSmart® farm operating lines – A revolving line of credit that is used to fund yearly operating expenses of your farm or ranch.
  • Land loans – Long-term loans that are used to finance or refinance farmland, pastureland or other land used for agriculture purposes.
  • Intermediate-term loans – Term loans that can be used to finance livestock, ag facilities, farm improvements and more.
  • AgDirect® farm equipment financing – Loan and lease options for new and used farm equipment including tractors, combines, planters, sprayers and more.
  • Facility loans – Competitive loans for cattle and hog barns, farm storage buildings, grain bins and more.
  • Farm Credit leases– Attractive lease options for farm storage buildings, grain bins, cattle and hog barns, farm equipment, vehicles and more.
  • Livestock Loans – Ag-friendly financing for the purchase, care, feeding or refinancing of debt on livestock.

What is agricultural land?

Land improved or unimproved which is devoted to or available for the production of crops and other products such as but not limited to fruits and timber or for the raising of livestock.

Who is a full-time farmer or rancher?

A producer actively engaged in the management of ag land or ag production and their net farm income is greater than their net non-farm income.

How do I qualify for a farm loan?

Financing decisions are made on a mix of information, which may include a credit bureau report and one or more years of a statement of financial position (balance sheet), income statement (tax return) and/or projection.

How much is required for a down payment on a farm loan?

On new land purchases, down payments of 35% are typical on many farm loans since farm properties typically don’t qualify for low down payment programs. The amount of the down payment is impacted by many factors and is specific to each application. If you have equity in current agriculture real estate, you may be able to use this as additional collateral as opposed to needing the 35% cash down payment. The final lending amount is also subject to several factors, and more or less of a down payment/collateral could be required depending on the situation.

How are interest rates determined for farm loans?

Three factors determine your rate:

  1. Risk– Lenders look at the risk of the borrower (credit score, history, experience, etc.) as well as the risk of the loan (quality of land, improvements, down payment, collateral, etc.).
  2. Aggregate risk– The more business you do or the more you borrow, the lower your rate will tend to be. It’s like buying a single bag of seed from a dealer versus buying in bulk; the more bags you buy, the cheaper the rate.
  3. Competition– Lenders want to be competitive in the market. Keep in mind that long-term sustainability is important, so those who are high-risk are asked to pay a little more and those who are low-risk tend to pay less.

When you’re ready to apply for a farm loan, your Farm Credit Services of America financial officer will discuss attractive fixed, variable and adjustable-rate loans to fit your needs. For a land loan, you can also apply online. The application takes about 10 minutes to complete and you will receive a response within three business hours.

What is the approval process for farm loans?

Once all required financial and application information is gathered, approvals are typically processed within 7-10 business days. Financing decisions are based upon multiple factors, all of which impact some portion of the resulting time frame.

What is the difference between Farm Credit loans versus traditional agricultural loans?

The Farm Credit System is a network of customer-owned financing cooperatives dedicated to supporting agriculture and rural communities. These lending institutions differ from investor-owned commercial lending institutions and are governed by boards of directors elected by the co-ops' customers. A portion of net earnings is returned to eligible customer-owners in the form of cash-back dividends.

How do I get started with a farm loan?

To try out different scenarios for determining how interest rates, payment schedules, loan terms and other variables could impact your loan payments, use our farm loan payment calculator

Your local financial officer can help guide you through the process. To visit with a financial officer, locate the office nearest you, purchase or refinance a farmland, ranch or acreage loan online.