Since the financial crisis of 2008, banks and other lenders have tightened credit requirements and lending guidelines for home buyers and refinance borrowers. Given the fact that there are slightly over two-million farms in the United States—only less than 200,000 of which produce significant profit—it is no surprise that the perception of agricultural finance is heavily influenced by the state of the overall economy. The reality remains, however, that farm loans are readily available if you know what you’re doing.
For farmers and prospective farmers interested in how to get a farm loan, the right guidance and information is essential to success. The Halo Capital Group can step in and help guide you through this process of getting funded. To learn more, fill out the form to the right and someone will get back to you within a few hours to discuss your options.
What Is a Farm Loan
So, what is a farm loan? The U.S. Census Bureau defines a farm as any business that produced and sold $1,000 or more in agricultural goods in a given year. Lenders go beyond this threshold to qualify prospective borrowers. Farmer Mac, for example, requires its agricultural funding agencies to cap any conventional loan amount to 70 percent of the total value of the farm’s assets. Those assets must also be twice the value of the total debt of the farm. There is also funding for agriculture with more liberal allowances guaranteed by USDA’s Farm Service Agency.
Agriculture Funding for Farmers: What Can It Be Used For?
Funding for farming can take the form of a real estate mortgage or a farm fund for operational expenses and improvements. It can be used to foster better conservation of natural resources. Other proceeds can pay for the construction of outbuildings, the purchase of seed and investments in machinery. While funding for farmers has a variety of uses, eligibility will always rest on the farm’s value and revenue stream.
Rural Lending vs. Farm Lending
First of all, there is a distinction between rural lending and farm lending. What is a rural loan? It could be a farm loan, but often relates to something off-farm. The United States Department of Agriculture (USDA) Rural Development agency is tasked with expanding and improving the quality of life in the rural communities of the country. To that end, it directs credit and monies to home finance, infrastructure, conservation and business attraction. Farmers will need to determine if solicitations for rural financing apply to their particular needs.
Agricultural Lending Guidelines
There are as many similarities as there are differences between residential lending and agricultural lending. In both cases, many financial institutions aim to sell their loans to government-sponsored corporations. Whereas home loans are directed to entities like Fannie Mae and Freddie Mac, agriculture funding is most often steered to the Federal Agricultural Mortgage Corporation, or Farmer Mac. Farmer Mac sets the criteria for loans to be purchased, so banks will incorporate those standards into their processing and underwriting. Guidelines for agriculture lending are quite specific.
Farm Credit Funding Network
Most institutions engaged in funding for agriculture belong to a nationwide network of lenders that specialize in farm credit funding. Beyond the normal agricultural funding sought by individual farmers, the pooled resources of these member banks can finance farm cooperative projects, rural utilities, infrastructure maintenance and commodity marketing campaigns.
Solar Farm Funding
Agri lending now extends beyond traditional growers of crops and livestock. Solar farm funding through grants and loans is now provided for under the terms of the Farm Bill passed every five years by Congress. Renewable energy is a high priority for policy makers and farmers funding is available to landowners to install panels for the collection of this green source of energy.
Wind Farm Funding
The same bill establishes a farm investment fund for those seeking wind farm funding. The USDA’s Rural Energy for America program guarantees loans for small and large wind generation projects. This form of farm lending diversifies a farmer’s income sources.
Funding to Start a Farm
To preserve open space and strengthen the agricultural economy, the federal government and the states aggressively market their funding to start a farm. The New Farmers initiative helps newbies learn how to finance a farm and guarantees agriculture funding for housing, animals and insurance among other needs.