What are Agriculture Loans?
Agriculture loans are loans made to assist agricultural businesses in opening and expanding their operations. Different programs offer both direct and indirect loan options. Some loan programs focus on helping farmers with operating costs when they cannot get private loans. Some programs provide assistance geared towards helping farmers find and build new markets. Others help develop and renovate housing for domestic farm workers. Some loans provide funding to develop commercial fisheries as well. These loans all require the borrower to pay money back to the lender. Each loan has different eligibility requirements that applicants must meet before getting the loan.
Types of Agriculture Loans
The federal government backs or provides six different agriculture loans. Farm Operating Loans provide funding to help farmers meet operating expenses, buy livestock, feed, seed, purchase fuel, make repairs, and meet payroll. Farmers trying for these loans must first try to go through a conventional lender who offers loans backed by the Farm Service Agency. If the lender will not make the loan then the farmer can make a loan request from the FSA directly. The farmer must provide collateral as well as meet other loan terms before the lender or the FSA will provide the loan. A similar loan program to this one is the Farm Ownership Loans. These loans provide funding for new farms or the ability to expand operations for existing ones. Farmers use both conventional and FSA funds.
A third type of agriculture loans are Farm Storage Facility Loans. These loans provide funds for building storage facilities for certain agricultural commodities like corn, oats, wheat, soybeans, peanuts, lentils, and dry peas. These loans also cover building cold storage facilities for temporary storage of perishable fruits and vegetables. This loan requires good credit and the ability to repay it. Another type of loan is the Farm Labor Housing Loan and Grant Program. This program offers both loans and grants focused upon providing suitable housing for farm laborers and food processors. Farmers can also use it towards building day care facilities, community rooms, and other group facilities.
The Fisheries Finance Program offers agriculture loans to commercial fishing industries as well as aquaculture and mariculture facilities. These loans provide funds to purchase or renovate fishing vessels. Farmer can also use the funds for rehabilitating or building facilities for aquaculture and mariculture for fish farming. The sixth loan program offered is the Commodity Marketing Assistance Loans and Loan Deficiency Programs. These loans help farmers to market their commodity crops in order to stabilize the farm's income. These programs usually last less than a year and require the farmer to pay the loan back with proceeds of the annual harvest.
How to Apply for Agriculture Loans
The Farm Service Agency handles most of these loan programs. They have tried to make this process as simple as possible for farmers to handle. They provide loan application forms through their website and through the local offices. In order to apply, the farmer needs to fill out the application forms and fax or send them to the appropriate office. Farmers can access and fill out some forms completely online. This allows farmers in areas without a local FSA or USDA office to provide all the documentation necessary without traveling long distances. This also cuts down on paperwork in those federal agencies.
In order to apply for agricultural loans, the person must be a citizen or permanent resident of the United States. They have to have experience and education in running a farm. Some programs require a certain amount of experience in running a farm in recent years. The farmer must have the ability to repay the loan. They cannot be delinquent on any debt to the federal government or have defaulted on a previous FSA loan, with certain exceptions. These loans are available to individuals as well as farm cooperatives, corporations or partnerships.
The typical information required for these agriculture loans is quite comprehensive. The farmer will need to provide a full three-year financial history for the farm and personal assets. A full three-year production history is required for some loans as well. The farmer provides creditor information and a full disclosure of all property they own and lease. They provide income disclosure for both farm and non-farm income. The federal government also requires a business plan and projected income and expenses for some loans. All of this information can go to the FSA or through a private lender depending on the loan type.
Once the information goes in for agriculture loans, the FSA will need to review the documentation. This process can take a few weeks in some cases. A private lender can make this process faster since they perform many of the checks the FSA needs in order to approve or decline the loan application. The FSA or the private lender can ask the person requesting the loan for more information or for additional collateral. They also have the option of declining the loan if the potential borrower does not have the ability to repay it within a reasonable term. If a private lender rejects the loan, the potential borrower can then turn to the FSA directly and try again.
If the FSA approves the loan, the borrower will have to sign the usual promissory note and other legal documents to make the transaction happen. The borrower is under the usual obligation to pay the loan back at the terms agreed. Most of the agriculture loans come with some provisions to help farmers make payments on an annual or semi-annual basis to coincide with harvest and other income-producing times.
Loans to improve farm housing go through the USDA Rural Development Agency. These loans go through Rural Development Agency directly. All applicants go through a two-stage process. The first stage, called the pre-application stage, submit information to determine their eligibility and the feasibility of the project. If approved in the first stage, the second stage involves submitting a full application with appropriate information. These loans work through farmers, non-profit agencies, farm worker associations, and Native American groups.
For more information, please visit the following websites:
- Farm Service Agency - http://www.fsa.usda.gov
- United States Department of Agriculture Rural Development - http://www.rurdev.usda.gov