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July 12, 2023

How to Choose the Right Agribusiness Loan for Your Farm 

Interested in applying for an agribusiness loan? Here’s what you need to know.  

At AgAmerica, we understand that applying for an agribusiness loan can feel like an arduous task. That’s why we work one-on-one with farmers like you to understand the full picture of your operation and find the financing strategies that work best for you. 

If you’re currently exploring financing options for your operation, keep reading for answers to some of the most important questions to ask when looking for the perfect agribusiness loan. 

How Do You Intend to Use Your Agribusiness Loan? 

It’s impossible to name every type of agribusiness loan, but they can be categorized into intention-based categories. Once you understand which category you fit into, it’s easier to compare benefits across lenders. Reasons to get an agribusiness loan generally fall into one of three categories. 

1. Refinance Debt 

An agribusiness loan to refinance existing farm debt is best for someone who is looking to lower loan payments, adjust the term of their loan, or consolidate debt.   

2. Purchase or Expand Your Farmland 

Farm expansion loans are best for someone who is looking to increase their profit capacity by buying more land or equipment, investing in rural property, or purchasing leased land.   

3. Secure Working Capital 

Many farmers need to increase their working capital to continue meeting financial obligations despite the uncontrollable obstacles they often face. 

Pro-Tip

Applying for an agribusiness operating loan could help you acquire working capital without the inflexibility of a 30-year, amortized mortgage. If you need greater flexibility in funds and use, a line of credit may be the best option.

What Are Your Agribusiness Loan Term Needs? 

Once you determine what your agribusiness loan will be used for, it’s time to decide on loan term specifics. As an ag-focused lender, we know that every farmer has different financial situations and cash flow needs. That’s why we don’t limit our clients to loan boxes. Instead, we create custom loans that are designed to meet individual needs.  

While our loan products aren’t set in stone, you can still get an understanding of our lending capabilities by understanding our range of offerings.  

Variable vs. Fixed Rate Agribusiness Loans 

Variable and fixed rate agribusiness loans differ in how interest rates are determined. They can either change based on interest rate environment or remain constant throughout the term of the loan.  

In a fixed-rate loan, your monthly payment will remain the same, regardless of changes in the market or economy. The benefit of a fixed-rate loan is the predictability, but if interest rates fall during the term of your loan, you won’t be able to take advantage without refinancing.  

With a variable loan, the interest rate can fluctuate throughout the term of the loan, meaning your monthly loan payment may be more or less than the previous month. Typically, variable rates are tied to a benchmark, like the prime rate (which is set by the Federal Reserve System). The benefit of variable loans is that they typically start at lower rates and the interest may continue to drop if the benchmark rate goes down. However, they are less predictable than a fixed-rate loan.  

Amortizing vs. Interest-Only Agribusiness Loans 

Amortizing loans and interest-only agribusiness loans differ in how the borrower makes payments and how the loan balance is reduced over time. 

In an amortizing loan, the borrower’s monthly payments include both principal and interest. This means that the loan will be completely repaid at the end of the term.  

On the other hand, an interest-only loan allows the borrower to make payments that only cover the accrued interest for a specific period, typically the initial period of the loan. During this period, the borrower does not pay down the loan’s principal balance. As a result, the monthly payments are lower compared to an amortizing loan. However, the borrower will still owe the loan balance at the end of the loan’s term.  

The choice between an amortizing loan and an interest-only loan depends on individual circumstances and financial goals. Amortizing loans allow borrowers to gradually pay down the loan balance and build equity. Interest-only loans can provide temporary affordability or flexibility during the initial period but may require higher payments or refinancing later on. 

What Are the Requirements to Qualify for an Agribusiness Loan?  

Every lender has their own underwriting process. But in general, most lenders have similar farm loan requirements that fall into three categories—eligibility, documentation, and qualification.  

STANDARD FARM LOAN REQUIREMENTS

ELIGIBILITY

Documentation

QUALIFICATION

Who you are and what you need.

Information your lender may ask for.

Factors your underwriter may consider.

  • Occupation 
  • Land Ownership 
  • Minimum Loan Value 
  • Property Value 
  • Citizenship 
  • Acreage
  • Business Plan 
  • Balance Sheet 
  • Income Statement 
  • Verification Statement 
  • Financial Projection 
  • Tax Returns 
  • Debt Service Coverage Ratio (DSCR) 
  • Debt-to-Asset Ratio 
  • Current Ratio
  • Loan-to-Value Ratio 
  • Credit Score

Agamerica’s Agribusiness Loan Spectrum 

At AgAmerica, we have a spectrum of loan programs that can be customized to fit your needs. While these options can overlap with varying terms on a case-by-case basis, our spectrum of agribusiness loan programs typically falls within the following classifications. 

CONVENTIONAL 

Conventional loans don’t have a set number that serves as the maximum loan amount. Loan-to-value (LTV) is based off the purchase price or appraised values of the desired property. The benchmark limit is 70 percent of the collateral’s value (a 70 percent LTV ratio) but can fluctuate on a case-by-case basis. 

Conventional loans can be either variable or fixed-rate and the length of the term can go up to 30 years. Conventional revolving lines of credit usually have a 5- or 10-year draw period.  

ACCELERATE 

AgAmerica’s Accelerate loan program is a streamlined financing option for agribusiness loans up to $4MM. These loans are long-term amortizing loans with terms up to 30 years. The loan-to-value ratio can go up to 75 percent of the collateral’s value.  

PIVOT 

The AgAmerica Pivot loan program is a transitional loan product with both amortizing and interest-only loan options. The loan can go up to 60 percent of the collateral’s value. Typically, the term of the loan is between three and five years but can go up to 30 years in select cases. It’s quick and easy to apply with expedited approval options available based on eligibility. 

ALTERNATIVE (HIGH-YIELD) 

Alternative loans are short-term, interest-only agribusiness loans that can support recapitalization needs with terms up to three years. 

Here to Support the Future of Your Farm 

Choosing the right agribusiness loan for your farm is an important decision. You deserve a partner who is personally committed to your long-term success. As a leading farmland lender with a large spectrum of customizable agribusiness financing solutions, AgAmerica can help you get the funds you need, the way you need them, and when you need them most. Contact us today to learn more.

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