How to get an agricultural loan with no down payment

Starting or expanding a farm is an important financial decision, but one that you don’t have to make alone. The US government, commercial lenders, and online banks offer financing options that can keep your farm running and growing. If you’re wondering how to get a farm loan with no money, keep reading.

Can you start a farm with no money?

The short answer is yes. You can get loans or other financing that doesn’t require you to have a down payment to start a farm or expand an existing farm.

It can be particularly difficult to obtain financing as a new farmer. That’s why the US government is trying to help through loans geared towards farmers in their first 10 years (called beginning farmers) who don’t demand incredible credit from their borrowers. These are called farm property loans offered by the Farm Service Agency (FSA), which is part of the United States Department of Agriculture (USDA).

In 2021, the agency distributed $2.1 billion in agricultural loans. Its “Beginning Farmers” loans are secured or direct and can offer up to 100% financing, eliminating your need for a down payment if you qualify.

If you don’t qualify for an FSA loan, you can research other financing options such as lines of credit or equipment financing that don’t require you to have a down payment. We cover these options below.

Ways to get a farm loan with no down payment

You have two main options if you want to get a farm loan with no down payment: get financing that doesn’t require a down payment, or get some farm loans through the FSA.

Many online lenders do not require a down payment for their financing options, such as lines of credit or equipment financing. You may not be able to borrow enough to start a new farm with these options, but you can fill in the gaps or expand your operations.

On the other hand, there are three types of FSA farm property direct loans, and two of them do not require a down payment: the ‘normal’ direct loan and the joint finance loan, which we discuss in the next section.

The FSA also offers a down payment loan, but it requires you to pay 5% of the purchase price for the loan. The agency also offers loans that target underserved communities, urban farmers, and organic farmers, as well as microloans for anyone who needs less finance. Contact your state Beginning Farmers and Ranchers Coordinator to the USDA to learn how to get started and find the right loan officer.

Best Farm Loan Financing Options

You don’t need a great credit score or decades of farming experience to qualify for farm financing. Here are some of the best options when looking for a farm loan.

Equipment Financing by LendSpark

What it is

If you are looking to expand your farm operations, equipment financing is a great choice. With an equipment loan, you can borrow money to buy new equipment you need to improve your farming operations, with no down payment.

how much can you borrow

Up to $2 million

What it costs

6% to 35% APR

Who is it best for

This loan is best suited for someone who needs money to purchase one or more machines to improve your farm efficiency or increase production. For example, if you need a new tractor for your farming business, you can use equipment financing to buy it.

Kabbage line of credit

What it is

A business line of credit allows the borrower to withdraw cash as needed up to a predetermined limit. You can then pay it back and borrow more. And it’s fast – with Kabbage, you can have funds in your bank account in as little as three days.

how much can you borrow

$2,000 to $250,000

What it costs

9% to 36% APR

Who is it best for

Because you can borrow less than other farm loan options, a line of credit is best suited for someone who already operates an existing farm but needs to expand or improve their operations. Interest rates may be higher than for other loans.

Farm Property Loan (FSA)

What it is

Congress sets aside money in the USDA budget for this loan program, so the FSA funds these loans directly through the USDA. A farm property loan can be used for many farm-specific purposes, including buying a family farm, expanding a farm, or improving the operational efficiency of your farm and can lend up to 100% of your financing needs.

how much can you borrow

Up to $600,000

What it costs

3.375% APR*

Who is it best for

This loan is fantastic for someone who is a beginning farmer and wants to start a farm but doesn’t have the credit history or the money to run it. If you qualify for this loan, you will likely walk away with low interest rates and good terms.

*Rates as of May 4, 2022

Farm Ownership Joint Finance Loan (FSA)

What it is

Think of this loan as a partnership – half is provided by the FSA and the other half is provided by a commercial lender. It may or may not be an FSA-backed loan, and it may offer great interest rates if you qualify.

how much can you borrow

$2,000 to $250,000

What it costs

2% less than the direct agricultural ownership rate but not less than 2.5%

Who is it best for

Anyone looking to combine an FSA loan with the offerings of a commercial lender.

How to qualify for a farm loan with no down payment

For qualify for an FSA farm loanyou must meet the eligibility criteria, including:

  • Have at least three years of farm management experience, education or training
  • Be authorized to live and work in the United States
  • Have an acceptable credit rating
  • Being unable to obtain a loan at reasonable rates from another lender
  • Have no other USDA debt that has been canceled in the past or owe any money to the federal government

Also remember that you may be able to get a agricultural credit on your taxes.

Which bank is best for agricultural loans?

The answer to this question is annoying: it depends. If you’re looking for an operating loan to help you manage your cash flow with easy-to-obtain qualifications, a fast loan application process with no closing costs, and quick funding, an online lender may be the best for you. . Even if you have to pay higher interest, they may be able to provide you with the maximum amount of your loan quickly.

On the other hand, if you need sufficient financing at a good rate and are willing to spend more time and effort to obtain it, you may consider a US government loan. The FSA can offer eligible applicants favorable interest rates for large amounts of loan funds with good repayment terms.

What type of loan can I get for a farm?

There are several types of loans that you can use together or separately to start a farm or to expand your farming business. Here are some options:

  • Government agricultural loan programs
  • Commercial real estate or land loans
  • Lines of credit
  • Equipment financing
  • Crop financing
  • Livestock financing

The type of financing you need depends on factors such as the size of your farm and the appraised value of your farm.

Is it difficult to get a loan to start a farm?

The federal government is working hard to lower the barriers to entry for new farmers. If you don’t qualify for a direct farm loan from the FSA, you can try a co-funding loan in partnership with a commercial lender. Alternatively, online lenders may be able to fill financing gaps with products such as lines of credit or equipment financing – and you can find these and other small business loans on the market. of Nav. Just make sure you understand all the fees and conditions of any loan before signing on the dotted line.

This article was originally written on May 9, 2022.

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