10 Ways An Agricultural Loan Can Help Farmers Grow
How do you decide how to use your agriculture loan? Here are ten options to consider.
If you’re in the agriculture business, you know that farming can be expensive. The costs of starting up and running a farm can be overwhelming, and it’s likely you’ll need financing – especially if you’re new to the industry. That’s where an agricultural loan comes in.
Agriculture loans are specifically designated for use in the industry, and there are plenty of ways you can use the proceeds to get your farm or ranch up and running or expand your operations. Careful use of that loan will set you up for success.
Before you even apply for an agricultural loan, you’ll want to plan how to spend the money. What resources will most benefit you and keep your business running? How much do you need to borrow? You’ll need to have these plans in place before you obtain the loan, as they will ensure that you use the loan in the right way.
So how do you decide how to use your agriculture loan? Here are ten options to consider:
1. Buying Farm Equipment
You can’t run a farm without specialized equipment. From tractors to irrigation systems to silos, your business is only as good as the equipment you use. High-quality, reliable equipment lasts longer and will make your job easier, but it comes with a hefty price tag.
If you’re just starting out in the agriculture business, you may significantly underestimate the price of specialized equipment. Before you over (or under) commit, thoroughly research the costs and options for the equipment you’re going to need and make sure it fits into your business plan. Itemize the cost of each piece of equipment, including operating costs (like gas) and maintenance and repair costs – you can’t fix a tractor tire with baling twine! Consider consulting with other people that have experience in the industry to get their insight on what kind of equipment you’ll need, what you can expect to pay for it, and what it costs to run and maintain.
If you’ve been in the business for a while, you may already have a good sense of what you need. However, you still need to price out every piece of equipment you plan to buy. You can also evaluate the equipment you already have – it may be cheaper to repair some things than to replace them, depending on the cost and the expected lifespan of the equipment.
Once you know what you need in terms of equipment, factor it into the size of the agriculture loan you’re planning to take out and make sure you’ll be able to handle the payments.
2. Purchasing Supplies
What do you need in order to grow crops? Seeds and dirt! If only it were that simple to get your farm off the ground! However, you also need equipment (as we previously discussed), fertilizer, harvesting tools, and money for these and all the other costs associated with starting a cash crop.
Your agriculture loan can help you get off on the right foot by enabling you to purchase necessary supplies, whether that’s a truckload of heritage tomatoes or a herd of Heifer cattle.
Keep in mind that you won’t be generating any cash until harvest time, so plan your loan amount accordingly – you may need to borrow enough to cover your operating expenses until you start to generate revenue.
3. Covering Land Costs
Agriculture loans can be used to purchase or lease land. The ins and outs of purchasing farmland can be tricky, and the land you need will depend on the type of farming you plan to do. You’ll need to work out what kind of land and how much of it you need and how much it’s going to cost so you can decide how much to borrow.
Note that it may be difficult to obtain an agriculture loan to purchase land without providing something as collateral. Banks know that farming can be a tough business to succeed in and may want some backing or a loan cosigner to ensure that they’ll be repaid.
4. Refinancing An Older Loan
If you already have agriculture loans outstanding, you may want to refinance. This means taking out a new, lower-interest loan and using the proceeds to pay off the old, higher-interest one. You still have an outstanding loan, but you’re saving money due to the lower interest payments.
This is a decision that only makes sense if the interest savings outweigh the refinancing costs, so it’s best to discuss with your financial advisors and your business team to make sure it makes sense for you.
5. Marketing Campaigns & Advertising
Once you’re up and running, you’ll need to market your products to the public and to vendors. From websites to logos to focused ad campaigns, PR and marketing costs can really add up. If you’re not familiar with marketing practices, you may want to talk to a consultant to decide what channels will be most effective for you. For example, trade journals may be a good way to reach out to business-to-business customers while online marketing may be a better way to get to retail customers. You can use your agriculture loan funds to boost your visibility – just make sure you’re getting the most bang for your buck.
6. Making Land Improvements & Repairs
Farms need constant upkeep and maintenance to run efficiently. An agricultural loan can be used for expensive upgrades or repairs to land or infrastructure. This kind of capital improvement can help boost your farm’s value, make your business more efficient, and improve your products. And in today’s market of conscious consumers, you’ll want to keep up with the latest trends in ethical farming and land care. This means sinking some money into improvements upfront, but pulling in big payouts in the long term. Just make sure you’re using some of your budget to advertise your big improvements!
7. Investing In Growth
An agricultural loan can be used to grow your business. When you first started out, you needed to spend a large amount of money on land, equipment, and other supplies. Expanding your operation takes similar kinds of investment. Use your agriculture loan to buy more land, larger facilities, more cattle, more equipment, more – well, you get the picture. You can also use the proceeds to hire more help – a bigger operation is going to take more hands!
8. Weathering The Storm
Farming is a fickle business. You never know how well your crops or livestock will fare from year-to-year. As with all businesses, you are at the mercy of your consumers and buyers. Commodity prices are notoriously volatile.
In addition, some farming is seasonal. Your slow season may need a cash infusion to keep the lights on and the business moving forward. You can use an agriculture loan to protect yourself through the ups and downs of your business. Use it to cover operational costs and the costs of getting back on your feet. It’s impossible to plan for and protect yourself from every eventuality, so agriculture loans are there to help you weather a lean season.
9. Covering Operating Costs
At the outset, the cost of running your business and getting off the ground can be prohibitive. You can use your agriculture loan to pay your employees, cover bills, and take care of expenses until you start to generate cash flows. This is not forever – once you’ve gotten the swing of running the business then you’ll be able to cover your own costs. But in the interim, a farm loan can help you make ends meet.
10. Rebuilding After Natural Disasters
The USDA Farm Service Agency (FSA) has a program in place to help farmers recuperate after natural disasters. You may face drought, flooding, tornadoes, fire, insect or disease infestations, and other threats that can put a serious dent in your ability to generate revenue. When that happens, you can take out an agriculture loan or an FSA loan to help cover the costs of repairs, operating costs, etc.
The Bottom Line
If you’re in the farming industry, you know that costs associated with starting up a farming business or running an existing one can be steep. An Agricultural loan is geared toward helping farmers make the leap into the world of farming, or taking their existing farm to the next level. Use your funds wisely, and soon you’ll be on your way to a prosperous farming future.