Agriculture Financing: Best Options in 2023

Agricultural workers and farmers don’t have an easy job, but their work directly impacts both the American way of life and our nation’s economy. Between the weather, seasonality of inventory, and many other factors, business owners in the industry must carefully manage their cash flow to ensure they’re ready to tackle the latest challenges.

But, apart from the challenges you’ll face, you will also encounter growth opportunities along your journey as an entrepreneur. You want to take your operation to the next level, of course, but what if you don’t have the available resources to pay for the opportunity while managing your other expenses?

Savvy entrepreneurs across all industries will leverage financing options to help support their business as it grows, and the agricultural sector is no different. With agriculture financing, you won’t have to find areas of your budget where you can free up cash; Instead, you’ll save the integrity of your operation and grow simultaneously.

The best way to maximize the benefits of agriculture financing is to understand the entire process before you start. If you have no prior experience, don’t worry: Here is our comprehensive guide to agriculture financing options in 2022

What Is Agriculture Financing?

Agriculture financing is a term to describe the various financing options available to entrepreneurs and business owners in the agriculture industry. Farms, ranches, and many other agricultural businesses can secure competitive financing options through a variety of lenders.

How you use your borrowed funds will depend on the financing option you’ve chosen. Some are more flexible, like business lines of credit, whereas others are more rigid in their application, like term loans. In some cases, you’ll need to have a detailed plan of how you intend to use your borrowed funds for a lender to approve your loan.

Besides the traditional financing instruments, agricultural entrepreneurs can seek other, more specific options through the USDA’s Farm Service Agency (FSA). These can be used for almost any expense you come across, including working capital purposes, land acquisitions, and recouping your losses after inclement weather events.

Whether you choose to go the traditional route or finance with the FSA, agriculture financing can help you take your business to the next level.

What Agriculture Financing Options Are Available to Entrepreneurs?

Agriculture financing encompasses many different financing instruments—some traditional and some more specific. Here are a few industry-specific options that you can leverage:

Farm Operation Loans

The FSA provides farm operation loans to help agricultural business owners purchase livestock, equipment, and inventory, like seeds. You can also use a farm operation loan to cover operating costs and the expenses associated with getting a farm up and running.

Farm Ownership Loans

Expanding your current farm or purchasing another is an expensive task, but farm ownership loans can help you break down the sizeable purchase into more manageable payments. This option is also used to cover closing costs, construction expenses, and the costs associated with land/water preservation, among other farm ownership costs.

Microloans

FSA microloans are smaller financing instruments used when you don’t need a substantial amount of capital. You can borrow up to $50,000 and use the funds for almost any business purpose, including working capital management, equipment purchases, or minor expansion costs.

Youth Loans

Young entrepreneurs looking to get a start in the industry can leverage FSA youth loans to fund their initial venture. However, they’ll need a recommendation from a project advisor, who will train, advise, and supervise the young entrepreneur as they use the borrowed funds.

Emergency Loans

Inclement weather can turn a profitable farm into a money pit in a matter of seconds. Fortunately, the FSA offers emergency loans to help farmers impacted by extreme weather conditions recoup their losses, allowing them to return to normalcy as soon as possible.

Targeted Loan Funding

The FSA sets funds aside for minority and women farmers looking to secure any of the abovementioned financing options. The eligibility criteria for targeted loans are less restrictive to ensure that the targeted groups can access the capital they need, increasing fairness across the board in the industry.

Native American Tribal Loans

Last but not least, we have Native American Tribal Loans—financing available specifically to help Tribes acquire land within a reservation or native community. According to the FSA, this type of loan is used for furthering current farm operations, providing financing support for Native American communities, increasing productivity, or saving cultural farmland for future generations.

What Are the Interest Rates on FSA Loans?

FSA loan programs feature competitive interest rates to help agricultural entrepreneurs maximize the benefits of their financing. Unlike traditional financing options, the interest rate you’ll pay isn’t determined by your business’s financial information. Instead, it’s based on the current SOFR (Standard Overnight Financing Rate) and the U.S. 5-year Treasury Rates. Here’s the data, according to the FSA:

• Loans with rates variable or fixed for less than 5 years:  The prior business day’s SOFR plus 6.75%.
• Loans with rates fixed for 5 years or more:  The prior business day’s 5 Year Treasury note rate plus 5.5%.

Data Supplied By FSA.USDA.gov

The sky’s the limit with FSA loans. Their low interest rate and favorable repayment terms give entrepreneurs the flexibility they need to maximize the benefits of their agriculture financing, allowing them to grow and outpace their competition.

Does Agriculture Financing Include Traditional Options?

While the FSA offers financing options specifically for agriculture businesses, entrepreneurs in the industry can also seek out traditional financing options to meet their goals and support their growth. These are found through banks, credit unions, and online lenders, but you can also secure capital through other sources, like crowdfunding platforms and angel investors.

Here are some of the most common traditional financing instruments used by entrepreneurs in the agricultural industry.

Term Loans

One of the most common loan options are term loans—one-time, lump sum payments that you repay within the terms outlined by your lender. Most FSA options are term loans at their core, but traditional term loans may have different interest rates and repayment terms depending on the lender you’re doing business with. You may have to offer collateral to secure a term loan, and you’ll likely have to give a detailed plan on how you plan to use the borrowed funds.

Business Lines of Credit

Business lines of credit are one of the more flexible financing options available to business owners in all industries. Most business lines of credit are revolving, meaning that once you pay back the borrowed amount, you can draw on the same funds again. Entrepreneurs will use this option to stay proactive against new challenges, manage their working capital, and afford minor expenses that they can’t afford at that current moment.

Equipment Financing

Next, we have equipment financing.

The majority of the agricultural industry relies on bulky, expensive equipment to perform their occupational tasks and increase their productivity. While this equipment does have its benefits, the cost stands as a significant hurdle to new entrepreneurs and business owners looking to keep up with their competition. Equipment financing allows you to break this sizeable purchase into more manageable monthly payments, leveling the playing field for entrepreneurs who can’t afford the purchase outright.

Merchant Advances

Merchant advances allow you to borrow against your future sales for cash in the short term. This option is most commonly used by seasonal businesses or those who experience long periods of low business activity. Rather than fighting your way through the slow season by cutting other areas of your budget, you can secure the cash you need without jeopardizing the integrity of your operation.

Accounts Receivable Financing

Much like merchant advances, accounts receivable financing borrows against future payments. In some cases, your clients might not send their payments through immediately. If they take longer than expected, it can cause a serious interruption in your business’s operations, but accounts receivable financing is a way around these late payments.

How Can I Use Agriculture Financing to Grow My Business?

Agriculture financing is an avenue toward sustainable growth. Once you’ve decided what loan option fits your needs, you’ll need to speak with a lender to find out their repayment terms, interest rates, and the programs they offer.

It’s much easier if you’re planning to finance your farm or ranch with the FSA, as you already know which options are available to you. Otherwise, you’ll have to search online to find a lender, which takes time.

You’ll want to research as many lenders as possible and compare each of their programs to find the best deal. Prepare to submit your business bank information, credit score, and other financial information for your business to lenders; They’ll surely ask for it.

Once you’re approved for financing, and you receive the funds you need, you can start using them in your business. While it might be tempting to throw your newfound cash at any problem that arises in your business, it’s important to stick to your arrangement. Any deviations from your carefully calculated plan might prevent you from maximizing the benefits of your financing.

Most importantly, you should try to use the funds to better position your business for success. Take a moment and assess your entire operation: What areas could increase your revenue with more capital? Are there any lingering debts that you need to pay off in order to afford a new opportunity? These questions are critical, yet many entrepreneurs forget to ask them.

Secure Competitive Agriculture Financing Options Through National Business Capital

The agriculture financing process is complicated, especially if you’re trying to manage the day-to-day operations of your business in the background. Many entrepreneurs won’t have the necessary time to research the various loan programs available to them comprehensively, but you can streamline your search by teaming up with a marketplace, like National Business Capital.

At National, our team of experienced Business Finance Advisors leverages a 75+ lender marketplace to connect entrepreneurs like yourself with competitive financing options to support their growth. We take the time to learn about you, your business, and your challenges to find best-fit solutions, establishing a relationship that you can lean on for any future financing needs.

Ready to see the opportunities available to your business? Complete our digital, streamlined application in minutes and take the first steps along your agriculture financing journey.

FAQs

What Is the Meaning of Agriculture Financing?

Agriculture financing is a term used to describe the multitude of business financing options available to entrepreneurs in the agriculture sector. The USDA’s Farm Service Agency (FSA) provides options specifically for agricultural entrepreneurs, like farm operation loans, but you can secure traditional financing options, such as business lines of credit, through other lenders, as well. You can use agriculture financing for a variety of purposes, including working capital management, inventory purchases, and, most importantly, growth opportunities.

What Bank Is Best for Agriculture Loans?

There isn’t necessarily a “best” bank for agriculture loans; The benefit of each lender will depend on your needs, the circumstances, and the type of financing you’re looking to secure. You should speak with the bank you do business with to see if they offer favorable interest rates and terms, but if they don’t, it isn’t the end of the road. Online lenders, FSA programs, and other banks/credit unions may offer more suitable terms for your specific needs, so make sure to speak with many different lenders before making any final decisions.

What Are the Types of Agriculture Finance?

Agriculture financing options are vast, with entrepreneurs able to access both FSA-sponsored options and traditional instruments as long as their business meets the qualifying criteria. You can secure farm operation loans, farm acquisition loans, emergency loans, youth loans, and more through the FSA. For more traditional options, you can access the capital you need through business lines of credit, term loans, and merchant advances through banks, credit unions, and online lenders.

What Are Agricultural Loans Called?

Agriculture loans are financing options specific to the agricultural sector. Through the FSA, you can secure farm operation loans, farm acquisition loans, microloans, emergency loans, and more. Underrepresented groups, including minorities, women, and Native Americans, also have access to targeted loan funding, and younger entrepreneurs can get their foot in the door with FSA youth loans.