What is a Farm Operating Line of Credit and How Does it Work?


As a working farm, you likely need access to continual capital. If you don’t have a large amount of assets sitting around, you might wonder where you will get the funds. One way is with the farm operating line of credit. This can help you have access to funds as you need them to operate your farm.

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Once you get approved for the line of credit, you are able to draw on the funds as necessary. You do not have to reapply for the funds once you use them either. As you pay the funds off, you are able to reuse them during the draw period. This gives you continual access to your capital as needed.

How Much Can you Borrow?

You will need to put up some type of collateral in order to secure the farm operating line of credit. Many lenders accept the value of your bare land as the collateral. Typically, you can borrow up to 50% of the land’s value in a line of credit.

Once you have the loan, you are able to draw on it in the amounts the bank determines. Many banks require at least a $2,500 draw at one time. They do not maximize the number of draws you can make as long as you still have the funds available.

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What Are the Terms?

Different lenders will have different terms for the loan, but typically, they have between a 5 and 10-year draw period. This period is when you are able to use, repay, and reuse the funds. Once the draw period ends, you are no longer able to draw on the funds. During that draw period, you will typically only be required to make interest payments. If you make principal payments too, though, you will be able to reuse the funds if needed.

If you take a 5-year draw period, you will then have a 10 – 25 year amortization period afterwards to pay back the principal of the loan. This means a total of up to 30 years for the loan. You may also opt for the 10-year draw period. If you choose this option, you will be given between a 5 and 20-year amortization period afterwards. Again, this gives you a maximum of 30 years for the term of the loan.

The farm operating line of credit helps your farm stay in operation. It gives you the capital you need to make purchases and enhance your farm. As you make money on your crops, you are able to use less of the line and eventually pay it off. It’s a great way to have access to the capital that you need in order to see in business.

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