Agricultural Loans 101: Determining the Best Financial Option for Your Agribusiness

Like any other business, agricultural companies frequently turn to financing as a means of supporting their operations through an influx of borrowed cash. But as an industry that provides many goods and services essential to the daily lives of all Americans, agribusiness companies must also grapple with unique pressures and challenges that affect their business operations.

To support these businesses and incentivize the essential services they provide, a wide range of financing options are available through both private and direct government lending options. Here’s an overview of the most common agribusiness financing options and how those businesses can secure this funding.

Traditional Agricultural Loans

Many community banks offer small business loans for agricultural businesses. If your agribusiness is looking for financial support, it’s wise to check with your local community bank to see what kind of products they offer.

Seek out a community bank with experience in providing agribusiness loans and strong familiarity with the local agricultural economy. Because the needs, challenges, and opportunities faced by agricultural companies are often specific to their location, a lender with a local presence will be able to understand these needs relative to the local industry.

Direct Farm Operating Loans

Direct farm operating loans are offered directly from the USDA Farm Service Agency (FSA) and can be used as a short-term funding solution to cover livestock, farm equipment, seed, fuel, feed, rent, insurance, and other operating costs.

This lending option is available to a wide range of agribusiness companies, and it can offer direct relief when businesses face an urgent funding need.

FSA Guaranteed Farm Loans

Unlike direct farm operating loans, guaranteed loans are available through a community bank. Guaranteed loans offer distinct advantages over other small business or agribusiness loans by coming with a government “guarantee” that reduces the risk for community banks issuing these loans.

These loans can be applied to cover either operating costs or real estate costs, depending on the specific type of loan you seek. As a result, your agribusiness can access lower rates and better terms than what traditional, non-guaranteed loans may offer. Contact your local bank if you’re interested in taking out one of these loans to support your agribusiness.

First-Time Farm Buyer Loans

To encourage new investments into agribusiness, the FSA offers a first-time farm buyer loan program that essentially functions as a partnership between the farm buyer, the FSA, and a private lender issuing the loan.

If you’re hoping to purchase a farm or other agribusiness, this type of loan can provide the right kind of financial support that lays the groundwork for success in the future.

Farm Microloans

Microloans are a financing option that can offer a fixed amount of funding to agricultural businesses in need of a small cash stimulus. The maximum amount for this type of loan is $50,000.

Bear in mind that these loans, like direct farm operating loans, are issued directly from the USDA and are not available through a commercial lender. This service offers a partial guarantee of the loan by the FSA, in exchange for more flexible loan qualification terms made available by the lender.

Other FSA Loans

The FSA offers a number of smaller loan and grant programs designed to serve specialized needs. If you’re unable to find satisfactory financial support through other lending options, check with your local FSA office to see if you qualify for any of these programs.

As an agricultural business, it helps to work with a lender that understands the needs and challenges of this industry. Get the financial support you need from a local community bank—contact FSCB today to learn more about our ag lending options.

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