Agricultural Loans

Agricultural Loans

Since America’s foundation, farming and ranching have been an important part of American traditional life as well as a major source of revenue for the country. A large proportion of United States exports are made up of farm and ranch products, and American farmers have been a hub of worldwide innovation in food production technology.

Starting with the Agricultural Revolution spurred by agricultural engineer Jethro Tull’s mechanical seed drill in England in 1701, American farmers and ranchers have continued to build technology that increases yields, decreases the need for human labor, and improves the quality and variety of agricultural products.

In the early days of the American Republic, most American agriculturalists were subsistence farmers, living hand-to-mouth, where an unexpected disaster such as a tornado or a draught, a sudden drop in the price of crops, or a disease epidemic could completely wipe out entire families.

Unlike our forbearers, today’s American farmers and ranchers have access to a wide variety of agricultural loans and other types of financial and technical support available to see them through the hard times as well as to help them deploy the latest technology, participate in land and water improvement infrastructure projects, and expand their operations.

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Short-Term Loans

Short-term loans are the types of agricultural loans that are most utilized for taking care of a working agricultural operation’s immediate needs. These loans generally are not very large, and they usually mature within 24 months.

There are many options available for these types of loans because they are designed to meet the unique needs of any size of farm or ranch.

Some short-term agricultural loans can be accessed for any unexpected circumstances that arise on a farm. Extreme weather conditions, plant disease, and price fluctuations can all spell disaster for an agricultural operation.

Even a broken tractor at the wrong time of year can jeopardize a harvest. Short-term loans may be used to cover costs and replace or machinery when sudden adversity strikes.

Some of these agricultural loans may be accessed from government organizations such as the United States Department of Agriculture, or USDA, while others (both government subsidized and unsubsidized) can be taken out from private banks.

These loans, particularly the ones through the government, offer advantageous interest rates.  Local banks and credit unions are also able to offer regular customers lines of credit, and those banks that focus on agricultural loans often feature flexible payment schedules, where loans can be paid when cash flow is higher.

Asset-based loans are a common type of short-term loan, and it is generally believed that they are the most flexible agricultural loans. This type of loan is often a microloan to satisfy an immediate need or start smaller new projects, and some of these are larger to meet more costly issues that arise with each season.

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They may be used to meet the periodic cash deficits that occur on all farms and ranches, or to deal with other unexpected circumstances that may occur. They may also be used to fund smaller expansions of a farm or ranch operation such as paying for the extra labor, fuel, and soil inputs that are needed to open up a new piece of land, purchasing breeding stock, or purchasing the equipment needed to fill up a greenhouse expansion.

Another type of short-term loan, called a seasonal loan, is one of the many varieties of agricultural loans that are taken out to meet immediate needs. One type of seasonal loan is used to finance or maintain what are called seasonal assets.

Seasonal assets generally include, for example, equipment and machinery that is only used part of the year such as balers or seeders, but which sits in storage the rest of the year. Another type of loan based on seasonal assets is called an inventory loan.

Many farmers use inventory loans to finance inventory when this is at its highest. These types of agricultural loans can be used to cover short-term seasonal costs such as increases in labor or initial investments in seed, animal feed, soil inputs, and other necessary chemicals. They may also be used to tune up or repair farming equipment, tools, and machinery.

Intermediate- and Long-Term Loans

Unlike short-term loans, medium- and long-term agricultural loans are used not only to protect against disaster, but also to meet long-term goals, grow and expand an operation, or invest for the future.

The maturity periods of these loans can be up to 20 years or longer. Intermediate- and long-term loans are a good way to invest in existing properties, such as expanding livestock areas, updating facilities for milking, or acquiring the necessary equipment to transition into newer types and technologies of growing plants like hydroponics or aeroponics.

Farmers can also use these loans to purchase new land, buildings, and vehicles.

Banks offer a multitude of medium- and long-term loans for all types of agricultural businesses, and their payment schedules and interest rates are designed to best suit farmers’ and ranchers’ needs.

In addition to this, the federal government has a variety of options available through the USDA or the Farm Service Agency, also called the FSA. USDA and FSA loans are available to all American farmers.

Furthermore, these agencies also have programs that place an emphasis on supporting specific groups of farmers, particularly minority farmers, women, young people just getting into the agriculture industry, and those looking to innovate new types of technologies.

USDA and FSA loans can be accessed directly through the government or indirectly through banks that partner with these government agencies to better allow access to more people.

In addition to supporting farmers in their business efforts, the USDA and FSA also aim to support investments into the future of farming and rural communities.

To this end, grants as well as medium- and long-term agricultural loans are available to encourage farmers and ranchers to build and maintain infrastructural projects to improve the quality of wastewater, irrigation, and drinking water.

Subsidies are also available for farmers who engage in ecologically beneficial projects such as building wind-power turbines, solar-powered facilities, and other land and water protection initiatives.

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Farms in Crisis

Because farming and ranching are mainstays of the US economy, there are more and more opportunities for those in the agricultural industry every day. In addition to these opportunities, however, there are also challenges.

Farmers and ranchers are tasked with the responsibility of feeding a quickly growing population. At the same time, they are facing the problems associated with global warming as well as working to meet strict emissions requirements that seem to change yearly. Farmers and ranchers need to sustain the ability to produce more food on less land and strive to decrease the environmental impact of their agricultural operations.

Despite government efforts to support American farmers over the last decades, from the programs instituted to revive ailing farms during the Great Depression to iterations of the Food Security Act of 1985, farming and ranching remain one of the most challenging industries in the United States and across the world.

The level of economic stress on farmers is quite high, and agricultural loans, both from banks and the federal government, allow farmers to reduce this stress and find success in their essential work.

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