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December 30, 2021

How to Finance Your Farm

Agricultural operations are a business, and they take significant capital to operate. The right financing options can provide capital for buying, expanding, and operating a farm. While there are a variety of loan options available, the agriculture industry has its own segment of financing specifically designed for the needs of farmers.


What Farming Looks Like in America Today

Nearly two million farms paint the rural landscape of American. These farms are family-owned operations that provide agricultural products like cattle, corn, and soybeans to feed the world. One farm feeds an average of 166 people every year. While cattle, corn, and beans are the bread and butter of US agriculture, a smaller number of farms produce everything from sugar cane and tobacco to peaches and almonds. 

At least one-quarter of all US farms are beginning farmers with less than ten years in business, and this represents a significant number of farms that may not have deep financial pockets to rely on. Agriculture financing options can help provide stability when cash flow gets rocky in these less established farms. 

Related: The Beginners Guide to How to Buy and Sell Land

Determine the Unique Challenges in Your Niche

Like any business endeavor, the first step in obtaining financing is developing an appropriate business plan for your farm. Whether you are purchasing a new farm or expanding your existing operations, the lender will want to see some data that provides a big picture of the market and potential challenges their investment will face. In other words, they will want to see that lending the money makes sense from an economic perspective. 

Income Streams

Agriculture income usually comes from several different sources. For example, a goat farm might have a primary income stream related to meat production. But the same farm with the same animals might also have secondary income from selling excess goat milk or live animals that are culled from the herd. Take some time to make realistic projections and portray them in the form of stunning visuals within your business plan.

US Economy vs. Global Economy

In reference to goat meat, farmers might have a challenging time sourcing local US buyers. While many Muslim groups in the US provide a niche market for goat meat, a much larger market exists globally. Understanding the inherent challenges your farm will face based on the US markets and global markets is key to providing a value proposition that your lender can understand.

Herd Illnesses

Another challenge that livestock farms face is the potential for significant losses from herd illnesses. Some diseases are preventable, and farmers routinely vaccinate their herds for protection. Others are not and can spread rapidly through a herd, causing production numbers to plummet or meat products to become unsellable. While farmers can take preventive measures to shield themselves from these losses, they are never fully preventable. This means that it is vital to expand agriculture businesses with diversification in mind.

Land Income helps investors put their money in institutional-quality farmland, capitalizing on agriculture. Learn more today.

corn on the cob

Related: 10 Farm Income Ideas for 2021

Exploring Farmland Loan Options

Not all agriculture loans are equal. Some programs are available nationwide, while others are restricted to farmers in certain regions. Some programs allow farmers flexibility to use funds however they see fit, while others dictate special use rules. Some loan qualifications require a minimum amount of acreage or minimum annual revenue, and yet others are available to farms of all sizes.

When choosing the best farmland loan options, consider factors like loan terms, closing costs, and down payments, as well as what it takes to qualify for the loan program. And most importantly, look into resource programs that may be available in the event of unforeseen future circumstances. When there is a business growth opportunity, it is easy to sign on the dotted line for a 30-year term. 

But in just a few year’s time, something as big as a global pandemic can radically shift business needs and make it difficult to meet the original loan terms. It’s always best to work with lenders who can provide flexibility when the market turns, so you don’t lose your farm.

Consider these competitive loan options:

  • Farm Credit Mid-America
  • AgAmerica Lending
  • American Farm Mortgage & Financial Services
  • Camino Financial
  • Farm Credit Services of America
  • FarmPlus Financial

Although agriculture debt is generally low-risk, it is never a good idea to borrow more than you can repay in a reasonable amount of time. That means if your farm is struggling to make ends meet, borrowing money alone won’t make it profitable. If you borrow that money to invest in a new operational plan, that could turn things around, but nothing in farming is guaranteed.

Related: Farmland Valuation: How to Value it Appropriately

cattle farm

Prepare to Meet with Lenders

Before you ask an agriculture lender to loan you $150K to invest in your agriculture operations, put the legwork in to prepare a strong application. For starters, you will need your farm’s business plan with updated numbers and verifiable proof of financial claims. You will also need to come up with proposed collateral, copies of federal tax returns, balance and income sheets, equipment lists, and much more. 

In addition to your documents, don’t overlook preparing for your face-time with the lender. Come up with some questions that will help you make the most of the time you have in the office. From gaining an understanding of how likely you are to be approved to laying the foundation for a trusting relationship with your lender, it is important to make sure both parties are on the same page before any money changes hands. 

The Bottom Line on Financing Your Farm

A variety of agriculture loans are available to fund the purchase of a new farm or business growth. The agriculture market has its own unique lending needs and a niche market of lenders willing to meet those needs. However, much like the rest of the business world, obtaining that funding still requires the due diligence of market research and thoughtful planning. If you are interested in exploring the financing options for your farm, the first step is figuring out your needs and preparing a rock-solid business plan for your farm. 

Land Income is your partner in high-quality agriculture investment opportunities. We have helped hundreds of investors make millions of dollars and we are ready to put our expertise to work for you. Contact us today to get started.

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