Agricultural Land Loans

Agricultural Land Loans

The history of agriculture in the United States is a long and proud one, started by the first settlers and carried on by the present-day farmers and ranchers who put 80 percent of the food on American tables and help to feed the rest of the world.  Agriculture is still big business, and supports 1 out of every 11 jobs in the U.S.  

There are over 2.1 million farms and ranches in the United States, primarily owned by a family or individual. The average size of these owner-operated farms is 434 acres. The life is not an easy one. Farmers and ranchers work from sunup to sundown, and have to brave the vagaries of weather and market. But it is a rewarding job for those who love the land.

Despite the hard work, many people dream of leaving the hectic pace of the city, moving to the country, taking up farming and living out the rest of their lives on the land that will be a legacy to their children. This is as true today as it was in 1862, when Abraham Lincoln signed the Homestead Act into law to encourage westward migration.  

Owning your own farm was no longer just a dream for many. If a person was courageous and determined, they could own their own 160 acres of land free and clear, paying with a small filing fee and years of hard work developing and improving the homestead.

The Homestead Act is no longer in effect. (The last homesteader to file a claim lived in Alaska; he received his deed in 1988.) But, a person can still leave the hectic life of the city and make a living as a farmer or rancher.

Agricultural land loans are available for both the beginning farmer and those already in business looking to expand or transform their operations. There are many sources of funds, but the most common are the United States Department of Agriculture (USDA) through its Farm Service Administration (FSA) and private commercial banks and lending institutions.

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Agriculture Loans History

The USDA was started in 1862 after being signed into law by President Lincoln whose platform promised help for the farmer. “The People’s Department” as he referred to it, was designated to assist farmers and help modernize the rural communities they lived in.  

At the time of its inception over 50 percent of the U.S. was engaged in farming. Today, roughly 2 percent of people make their living in agriculture. But the USDA helps every citizen through its education of farmers; food research; ensuring commercially sold meat, poultry and eggs are safe for consumption; and through its efforts in water and soil conservation.

The FSA also provides agricultural land loans through several of its programs and while all farmers can apply for these loans, some funds are held for those who have traditionally been underserved.  

Part of the USDA’s mission is to offer support for women, minority, and beginning farmers and those in their first ten years of farming or ranching. These loan products listed below are available to all farmers and ranchers.

Guaranteed Farm Loan Program

The Guaranteed Farm loan program helps ranchers and farmers obtain loans to purchase or expand farms. These loans are obtained through USDA-approved commercial lenders. They can be commercial banks or lending institutions.

While the lender funds, services and owns the loan, the USDA backs the loan – eliminating risk for the lender and providing a source of funds at competitive rates for the borrower.

The companion to this loan is the EZ Guarantee Program loan, also administered by commercial banks, credit unions and lending institutions. The loans can be made for up to 100,000 dollars with no minimum loan amount.

These loans are geared towards beginning, small, traditionally underserved and family farmers. They have a streamlined application process ensuring a speedier approval process.  Agricultural land loans through this program can be used towards farm ownership.

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Direct Farm Ownership Loan

The FSA also offers a Direct Farm Ownership loan. This loan is serviced by local Farm Loan Officers and Managers. The funding comes from the annual appropriations Congress gives the USDA.  

Depending on your needs, you have a choice of “regular,” joint financing, and down payment loans. These agricultural land loans can be used towards a farm or ranch in these ways:  put a down payment on or buy a farm, expand an existing farm, purchase easements, and protect your land through water and soil conservation.

Microloan Programs

Microloan Programs offered by the FSA can also be a source of capital. These loans have a maximum borrowing amount of 50,000 dollars, but no minimum. The focus of these loans is on the financing needs of the small and/or beginning farmer, as well as non-traditional or niche farms such as operations focusing on hydroponic, organic or vertical farming or someone with a small shiitake growing operation.

Obtaining Funds For Agricultural Land Loans

When obtaining funds for agricultural land loans, the funds can be used to make a down payment on a Farm Ownership loan or improve land through soil and water conservation.

Private industry can be a source of capital for the beginning or established farmer or rancher. Commercial banks and lending institutions traditionally have competitive loan rates and varied portfolios of loan products for agricultural land loans.  

Most banks that were lending to agriculture came through the recent financial crisis in good shape since they were not lending in the high-risk mortgage or real estate areas. As a result, credit from these banks was still available to farmers and ranchers during and after the crisis.

Larger banks often have departments that specialize in agricultural finance. Their loan officers may have a broad knowledge of the industry as a whole, or they may be specialists in geographical areas or particular ag areas.  

The loan officers in small banks often live in the areas they work in. They may have the advantage of a deep knowledge of the agricultural environment of the communities they serve.  With access to private enterprises like the Federal Agricultural Mortgage Corp. (Farmer Mac) they are able to access money at competitive rates that they can pass on to the borrower – especially in the area of agricultural land loans.

Lending institutions may have agricultural specialists or the institution itself may specialize in one area. Those that specialize usually concentrate on a very large farming industry such as cattle and wheat farming or in certain geographical areas such as Texas.

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Using Agricultural Land Loans

Agriculture is still an important business in the United States and lenders providing agriculture financing want your business.  If you are in the market for agricultural land loans, it makes sense to investigate the portfolio of products offered by several vendors.

Whether you choose the FSA, a large or small commercial bank, a credit union or a lending institution, you need to be aware of the overall cost of the loan.  When a farmer or rancher purchases a combine or milking machine, he or she will compare prices, check out the service from the seller and work to be sure they get the best value for their money. This applies to loans as well.

Capital is a tool, so be sure to compare interest rates – whether fixed or variable, loan repayment terms, and the overall cost of the money you are borrowing. This will enable you to access the agricultural land loans that are best for your needs and then make a choice from amongst those loans.  The loan will provide you with another tool to help manage your farm or ranch to profitability.

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