How to Get Approved for a Farm Loan
Farm loans are available to qualified borrowers. Getting approved for a farm loan is much like getting approved for any other kind of loan, such as a home loan. Here are some of things a lender is likely to require from you.
Acceptable Credit History
As with any loan, credit history is extremely important in obtaining a farm loan. If you have a positive history of paying loans off on time and in full, you are more likely to be approved for a farm loan. Your credit history includes things like car loans, mortgages and credit card payments. This may be the first thing a lender looks at when you apply for a farm loan; a lender needs to know you have a decent credit history in order to feel comfortable lending you the money you need. The better your history, the more sure the lender can be that they will get their money back. If you are delinquent or have defaulted on any previous loans, the more of a risk you are considered to be and the less likely you are to get approved. If you do manage to get approved, you may be given a higher interest rate than a borrower with a good credit history.
Sufficient Ability to Repay
When you apply for a farm loan, your lender will decide whether they feel you have good prospects for being able to repay the loan. This means they will want to know what you are growing or raising, what the prices for your product are and are expected to be, how successful you have been in the past and other factors. You must be able to convince your lender that you will have the means to repay your loan in full when it comes due.
Collateral and Down Payments
Many lenders require some form of collateral to back up your loan. Collateral is property or produce that you own that the lender will take from you instead of money if you default on your loan. The lender will then sell the collateral in the hopes of getting some of their money back. Collateral is often property, such as acreage, a home or equipment. In some cases, a lender may agree to use your next harvest as collateral; if you default, the proceeds from the harvest will go to your lender. Some lenders also require you to make a certain percentage of the downpayment on the property or equipment you wish to buy. For example, if you want a loan for some additional acres, your lender may want you to make a down payment of 10% of the property's value.
The Farm Service Agency
If you are unable to obtain a loan from a commercial lender, the federal Farm Service Agency (FSA) may be able to help you. The FSA provides direct, guaranteed loans to farmers and ranchers who cannot get approved elsewhere. These loans are available to help you purchase land, feed, seed, livestock equipment and supplies or to construct buildings and make other physical improvements to your property. However, there are still certain qualifications you must meet, such as being able to eventually repay the loan.