Understanding Ag Loans

A Guide to Ag Loans and Agricultural Financing

What is an agricultural loan?

An agricultural loan is financing designed to help farmers and agricultural businesses pay for operating expenses, equipment, livestock, farmland, buildings, and other farm-related needs. Depending on the purpose, an ag loan may be structured as a line of credit, term loan, real estate loan, or construction loan. 

At Bank Midwest, we understand that agricultural financing needs to work with the realities of farm life. Farming operates on seasonal cycles, and the timing of expenses and income can vary from one operation to the next. Our ag lenders work with farmers to understand their operation, financial goals, and cash flow before helping them determine a financing approach that fits. 

The right type of financing depends on what you need to fund, how long you’ll need the funds, and how the investment fits into your farm’s cash flow.

What Can An Ag Loan Be Used For?

Farmers and agricultural businesses have different financing needs throughout the year. An ag loan can fund both day-to-day operating expenses and larger investments that support a farm’s long-term growth. The right financing depends on what you need to purchase, how the investment will generate value, and when you expect to repay the funds.

Common uses for agricultural loans include: 

• Farm Operating Expenses: Cover seasonal costs such as seed, feed, fertilizer, fuel, labor, and other production expenses.
• Farm Equipment and Machinery: Finance tractors, combines, planting and harvesting equipment, and other essential machinery. 
• Farmland and Real Estate: Purchase farmland, additional acreage, or other agricultural real estate to support your operation. 
• Livestock: Fund livestock purchases and other costs associated with raising and maintaining animals. 
• Farm Buildings and Improvements: Construct, expand or improve barns, grain storage, livestock facilities, shops, and other farm structures.
• Farm Expansion: Invest in additional land, equipment, livestock, facilities, or other resources as your operation grows. 
• Beginning a Farm Operation: Finance the land, equipment, livestock, and other resources needed to establish a new farming operation.

Ultimately, the purpose of the financing plays an important role in determining the type of ag loan that makes sense. A seasonal operating need may call for a line of credit, while a long-term investment such as farmland or equipment may be better suited to term financing. 

Bank Midwest provides a variety of agricultural lending options. Our local ag lenders can help you evaluate your options and structure financing around your operation’s needs. 

Types of Ag Loans

The type of agricultural loan you need depends on what you’re financing, how long you’ll need the funds, and how the investment fits into your farm’s cash flow. Common types of ag loans include:

• Farm Operating Loans: Help cover recurring and seasonal expenses such as seed, fertilizer, feed, fuel, labor, and other costs of running a farm. 
• Farm Equipment Loans: Provide financing for tractors, combines, planting and harvesting equipment, and other farm machinery. 
• Farm Real Estate Loans: Assist farmers in purchasing farmland, additional acreage, or other agricultural property. 
• Livestock Loans: Finance the purchase of livestock and other expenses related to growing or expanding a livestock operation. 
• Farm Construction Loans: Funds the construction, expansion, or improvement of agricultural buildings and facilities, including barns, grain storage, and livestock facilities. 
• Farm Lines of Credit: Provides flexible access to funds for ongoing or seasonal operating needs, with the ability to draw funds as expenses arise. 
• Beginning Farmer Loans: Helps new or beginning farmers finance the land, equipment, livestock, and other resources needed to establish an operation. Some beginning farmers may also qualify for government-backed programs.

The right loan structure depends on the purpose of the financing and your operation’s financial needs. A local Bank Midwest expert can help you evaluate your options and determine a financing approach that aligns with your farm’s goals and cash flows.

How Does an Ag Loan Work?

An ag loan works much like other types of business financing, but the loan structure and repayment terms can be tailored to the unique cash-flow cycles of an agricultural operation. The process typically includes these steps:

1. Identify Your Financing Needs: Determine what you need to finance, such as operating expenses, equipment, farmland, livestock, or a farm improvement project.
2. Choose the Right Loan Type: The purpose of the financing will help determine whether a term loan, line of credit, equipment loan, real estate loan, or another type of agricultural financing is the right fit.
3. Review Your Financial Information: Your lender will typically review information about your farm’s income, expenses, assets, existing debt, and projected cash flow. You may also need to provide tax returns, financial statements, production records, or other documentation. 
4. Determine Loan Terms: Your lender will work with you to establish the amount, interest rate, repayment schedule, and other terms based on the type of financing and your operation’s financial position.
5. Review Your Funds: Once the loan is approved and closed, funds are made available for the approved purpose. Depending on the type of financing, you may access funds at once or draw from a line of credit as needed.
6. Repay the Loan: Repayment terms vary by loan type and can be structured around the expected cash flow of your agricultural operation. Seasonal financing may align repayment with crop or livestock sales, while longer-term loans may use regular scheduled payments. 

One advantage of working with a local agricultural lender is having someone who understands the timing and financial demands of farming. At Bank Midwest, agricultural lending decisions are made locally, giving farmers access to lenders who understand the realities of farm operations and can provide responsive guidance throughout the lending process.

What Do You Need to Get an Ag Loan?

The information required for an ag loan can vary based on the lender, loan type, and purpose of the financing. In general, be prepared to provide information that helps your lender understand your operation, financial position, and ability to repay the loan.

Common documentation includes:

• Financial Statements: Current balance sheets, income statements, and other financial information for your operation.
• Tax Returns: Personal and business tax returns may help lenders evaluate income and financial history.
• Farm Records: Production history, acreage, livestock inventories, and other records related to your operation. 
• Debt Information: Details about existing loans, lines of credit, and other financial obligations.
• Information About the Purchase or Project: Purchase agreements, equipment details, real estate information, construction plans, or other documentation related to what you’re financing. 
• Business or Farm Plan: A business plan, operating budget, or projected cash flow may be helpful, particularly for new or expanding operations. 

At Bank Midwest, our ag lenders can help you understand what information is needed and guide you through the financing process. The goal isn’t simply to provide a loan; it’s to understand where your operation is today and where you’re working to take it next. 

How Do Lenders Determine How Much You Can Borrow?

There isn’t a set loan amount that applies to every farm. Lenders consider several factors when determining how much agricultural financing an operation can reasonably support. 

Key factors may include:

• Repayment Capacity: Your farm’s income and projected cash flow help determine how much debt the operation can support. 
• Credit History: Your credit history provides insight into how you have managed debt and financial obligations.
• Existing Debt: Current loans and other obligations are considered when evaluating your overall financial position.
• Assets and Collateral: The value and type of assets available to secure financing may affect the amount and structure of the loan.
• Farm Income and Expenses: Historical and projected revenue, operating costs, and profitability help lenders understand your farm’s financial performance. 
• Production History: Crop yields, livestock production, and other operating history can help demonstrate the farm’s ability to generate income.
• Purpose of the Loan: The amount and type of financing needed will depend on what you’re purchasing or funding, from seasonal operating expenses to farmland or major equipment. 

At Bank Midwest, we consider these factors together to determine a loan amount and repayment structure that aligns with your operation’s financial position and goals. 

What are the Benefits of an Ag Loan?

An ag loan can provide the capital you need to manage seasonal expenses, make important investments, and grow your operation. The right financing can also help you manage cash flow while preserving working capital for other needs. 

• Manage Seasonal Cash Flow: Financing can help bridge the gap between farm expenses and revenue generated from crops or livestock.
• Purchase Equipment and Assets: Financing can help spread the cost of major purchases over time.
• Expand Your Operation: Farm financing can support land purchases, facilities, and other expansion needs.
• Preserve Working Capital: Using financing for major purchases can allow a farm to retain cash for other operating needs.

For farmers, financing is often about more than covering an immediate expense. The right loan can help you prepare for the next season, invest in your operation, and pursue long-term opportunities. Bank Midwest works with farmers to provide financing designed around the timing and needs of agriculture, backed by local decision-making and personal support. 

Ag Loans vs. Other Types of Farm Financing

“Ag loan,” “farm loan,” and “agricultural financing” are often used interchangeably, but they can describe different types of funding. The best option depends on what you’re financing, how much you need, and how the expense fits into your farm’s cash flow. 

Financing Type	Common Use
Operating line of credit	Seasonal operating expenses
Equipment loan	Machinery and equipment
Farm real estate loan	Land and agricultural property
Construction loan	New farm buildings/faciilties
Government-backed farm loan	Eligible agricultural financing through programs such as FSA

 

Conventional Ag Loans vs. USDA FSA Farm Loans

Farmers may have several options when looking for agricultural financing, including conventional ag loans from banks and programs offered through the USDA Farm Service Agency (FSA). The right options depend on your operation, financing needs, and eligibility. 

Conventional ag loans are offered directly by agricultural lenders and can provide financing for needs such as operating expenses, equipment, livestock, farmland, and farm improvements. Loan terms and requirements vary by lender and the type of financing. 

USDA FSA farm loans are designed to help eligible farmers and ranchers get financing for purposes such as purchasing or improving farmland, covering operating expenses, and acquiring equipment or livestock. FSA offers both direct loans and loan guarantees through participating lenders. Some programs also provide options specifically for beginning farmers. 

Bank Midwest also offers ACRE loans, a federal program designed to provide financing assistance to eligible new farmers purchasing agricultural real estate or agricultural production facilities. Bank Midwest lenders can help eligible borrowers understand the program and determine if it may fit their situation. 

If you’re considering an ag loan, an agricultural lender can help you understand your financing options and determine which programs may fit your operation.

How to Choose the Right Ag Loan

The right ag loan depends on what you need to finance and how the investment fits into your operation’s financial plans. Consider:

• What are you financing? An operating expense, equipment purchase, land acquisition, and construction project may each require a different financing structure. 
• How much do you need? Determine the amount required to complete the purchase or cover the expense without taking on more debt than your operation can support. 
• When will you repay the loan? Consider when the investment will generate income and how repayment fits into your farm’s seasonal cash flow.
• How long will you need the funds? Short-term operating needs may call for a different solution than a long-term investment in land, equipment, or facilities. 
• Are there special programs available? Depending on your circumstances, you may qualify for USDA FSA programs or other agricultural financing options. 
• What are your long-term goals? The right financing should support your current needs while fitting into your plans for growth, expansion, or succession.

The right ag loan can help you manage seasonal expenses, invest in your operation, and plan for the future. At Bank Midwest, our agricultural lenders understand that no two farms operate exactly alike. We combine local decision-making with financing options designed for the realities of agriculture, from operating lines of credit and equipment financing to agricultural real estate loans and specialized programs for eligible new farmers. 

If you’re considering an ag loan, talk with a Bank Midwest agricultural lender about your operation, your goals, and the financing options available to you.

Frequently Asked Questions

What is an agricultural loan?

An agricultural loan is financing designed to help farmers and agricultural businesses pay for expenses and investments related to their operations. Depending on the need, an ag loan can be used for seasonal operating costs, equipment and machinery, livestock, farmland, buildings, expansion, or other farm-related expenses. Financing may be structured as a line of credit, term loan, real estate loan, or another type of agricultural financing. 

Who uses ag loans?

Ag loans can be used by a wide range of agricultural operations, including row-crop farms, livestock operations, dairy farms, specialty crop producers, and other agricultural businesses. Established farmers may use ag financing to purchase equipment, expand their operations, or manage seasonal expenses, while beginning farmers may seek financing to acquire land, equipment, or other resources needed to get started. 

What can an ag loan be used for?

Ag loans can be used for a variety of agricultural needs, including operating expenses, farm equipment, livestock, farmland, farm buildings, and expansion projects. The type of financing depends on what you need to fund and how the expense fits into your farm’s cash flow.

What type of ag loans are available?

Common types of ag loans include operating loans and lines of credit, equipment loans, farm real estate loans, livestock financing, and construction loans. Beginning farmers may also have access to specialized financing programs. 

How are ag loans different from typical business loans?

Farming has unique financial considerations that can make agricultural financing different from a typical business loan. Farm income and expenses often follow seasonal production cycles, and revenue may not come in at the same time as major operating expenses. Ag lenders can structure financing around the timing of a farm’s production, sales, and cash flow. 

What do you need to qualify for an ag loan?

Lenders typically review factors such as your farm’s income, expenses, assets, existing debt, credit history, and production history. You may also need to provide financial statements, tax returns, farm records, and information about what you plan to finance. 

How much can you borrow with an ag loan?

The amount you can borrow depends on factors such as your farm’s repayment capacity, financial position, existing debt, assets, and the purpose of the loan. Your lender can help determine an amount and repayment schedule that fits your operation. 

Can you get an ag loan to buy farmland?

Yes. Farm real estate loans can be used to purchase farmland, additional acreage, and other agricultural property. Loan terms will vary based on the property, financing amount, and your operation’s financial position.

How does repayment align with ag production cash flow?

Ag loan repayment can be structured around your farm’s production cycle and expected cash flow. Seasonal operating financing may align repayment with crop or livestock sales, while longer-term loans can use payment schedules based on the asset and your operation’s ability to generate income. 

What’s the difference between an ag loan, farm loan, and agricultural financing?

These terms are often used interchangeably. Ag loan and farm loan generally refer to loans used for agricultural operations, while agricultural financing is a broader term that can include loans, lines of credit, and other financial solutions. 

Can beginning farmers get ag loans?

Yes. Beginning farmers may qualify for conventional ag financing as well as certain USDA Farm Service Agency (FSA) loan programs. Eligibility and requirements vary by program and lender. 

What is an ag operating loan?

An ag operating loan provides financing for the ongoing and seasonal expenses of running a farm, such as seed, fertilizer, feed, fuel, and labor. An operating line of credit may provide flexible access to funds as expenses arise. 

Are USDA FSA loans the same as ag loans?

No. USDA FSA loans are specific programs offered by the Farm Service Agency (FSA), while ag loans are a broader term for financing used to support agricultural operations. Eligible farmers may use FSA programs or work with a commercial ag lender for conventional financing.