Farm Loan Requirements

When you are looking for funding to purchase a business, there are a variety of documents and information you should provide your lender:

• A solid business plan that provides detailed information, including:
  • Description of your plans and what you may reasonably achieve based on those plans.
  • Financial history for yourself, any partners, and the business itself
  • Market analysis and marketing/sales plans
  • Description of your operation that provides a brief view of the overall operation.
• Your story is to help the lender better understand who you are as a person and business owner and why this plan is important to you and your family.
• Information and documents to support where you are located/reside and the business value.

But what else does your lender need to know to help you?

When looking for a farm loan, several options are available from several sources. Each farm loan product is designed to fit specific needs, depending on a combination of variables:

• Is this a first-time farm loan? Or are you looking to purchase an additional property or expand the operations for a current farm?
• Size and price of the farm being purchased? As well as, estimated value of any structural improvements on the property.
• How much are you looking to borrow?
• Do you have a history of paying your creditors on time? Do anticipate any issues with your credit report?
• What is your citizenship status?
• Will you be the farm’s owner/operator after the acquisition? Who else may be in one or more of these roles?
• What is your farm management experience?
• Will your farm be considered a “family farm”?
• What are you looking to produce (grow/raise)? And what might be the potential yield/value?
• How are you planning to use the money you receive?

The answers to these questions will help determine which type of loan you may be eligible for – and from what sources.

Loan Types and Their Sources

Because American agriculture is such an important part of the economy – and essential in helping to feed the world – there are not only traditional business loan products available, but also those through the United States Department of Agriculture’s Farm Service Agency (FSA) and the Federal Agricultural Mortgage Corporation (Farmer Mac). They have different processes and approaches – and not all loans are geared toward the same borrowers. Let’s look at some that may be most useful to you.

FSA Loans

The FSA provides a variety of farm loans both directly and through Preferred Lenders. Specifically for purchasing farm land, they provide farm ownership loans for:

• Buying a first farm or ranch
• Adding more acreage to an existing farm or ranch

Though the FSA offers “direct” loans (where you apply and go through the process directly with that agency), those are typically for specific (and potentially smaller) types of loans. Most borrowers will want to take advantage of working with a commercial lender who has been approved at the highest level of the FSA’s lender certifications – a Preferred Lender like First Financial Bank.

Preferred Lenders work with farmers and ranchers within their own bank’s lending process. This can make the process quicker and smoother for the borrower. The bank is then the “customer” of the FSA through the  Guaranteed Farm Loans program.

What are the requirements for FSA loans?

In addition to the other details you are providing as part of your loan application, to be eligible for the Guaranteed Farm Loans program, you must also show that:

• You are a U.S. citizen or legal resident.
• The property you are acquiring or expanding must be considered a family farm or ranch.
• You must be engaged in the day-to-day work – be an “owner-operator” – of the farm or ranch after acquiring the loan.
• You must meet specific credit requirements, including an appropriate credit history, not owe the Federal government any money currently, and have not caused the FSA losses through prior debt forgiveness (within specific time parameters).
• Be unable to get a loan without the FSA guarantee.

An FSA loan doesn’t fit everyone looking to buy their first or additional farm land. Farmer Mac may provide additional options for the farmer or rancher.

Farmer Mac Loans

Farmer Mac is considered a “secondary market” for agricultural loans. Their goal is to provide opportunities for approved financial institutions to provide flexible, cost-effective loan options to farmers and ranchers. You are the lender’s customer – and the lender is Farmer Mac’s. This provides Farmer Mac approved lenders, including First Financial Bank, with potential resources for your farm land loan needs. You don’t have to be the expert; your loan officer can assess and identify what might be the best loan options for you.

Where do you start?

You’ll want to be sure to build as complete a “farm plan” as you can – and schedule time to consult with an experienced Farm & Ranch lender, such as one who is both an FSA Preferred Lender and approved Farmer Mac lender: First Financial Bank. Between the FSA and Farmer Mac options, your experienced Farm and Ranch loan officer at First Financial Bank will review your plans and provide the best option to fit your needs.