Farm Loans and Credit Basics

What kinds of farm loans exist?

Farm credit generally falls into short-term operating credit, intermediate-term credit for equipment and livestock, and long-term credit for land and buildings. Operating loans help with the year's costs. Equipment loans match the life of the machine. Land loans are longer.

Lenders include banks, credit unions, farm credit cooperatives and government agencies. Each has its own rules, rates and requirements.

Match the loan to its purpose, and avoid using short-term credit for long-term purchases.

• Operating loans: yearly costs
• Equipment loans: machines and livestock
• Real estate loans: land and buildings

What do lenders look at?

Lenders often consider your credit history, your income and cash flow, your collateral, your experience, your records and your plan. The details differ by lender and by program.

They want to see that you can repay and that the loan fits the farm. A written plan with realistic numbers goes further than an optimistic one.

If your credit is limited or damaged, ask about programs designed to help beginning or underserved farmers, and about steps you can take to improve your position. Lenders also notice how you keep records. Tidy books signal that you manage the farm carefully.

• Credit history and current debts
• Cash flow and repayment ability
• Collateral such as land or equipment
• Experience and management
• Business plan and records

How should you prepare?

Gather recent tax returns, financial statements, a list of assets and debts, a cash flow plan and a description of what the money is for. Know what you are asking for, how long you want to borrow and how you will repay.

Talk with your lender early, before an emergency, so they know you and your farm.

Apply to more than one lender when possible, and compare terms rather than taking the first offer.

• Recent tax returns and financial statements
• List of assets and debts
• Cash flow plan
• Clear description of what the money is for

What terms should you understand?

Interest rate, term, payment schedule, fees, collateral, prepayment rules and what counts as default all matter. A low rate can come with costs elsewhere. Ask for a plain explanation of the total cost of borrowing.

Do not sign anything you do not understand. Ask to take the documents home and have a trusted advisor review them. A short review by an attorney can be a bargain compared with a bad loan.

Personal guarantees put your own property at risk, and they are worth special thought. A loan is a promise about the future, so test it against a bad year before signing.

• Interest rate and whether it can change
• Fees and closing costs
• Collateral and personal guarantees
• Penalties for paying early or late

How much debt is too much?

There is no universal answer, but your cash flow plan helps. If payments leave no room for a bad year, the debt may be too heavy. Look at the farm's repayment ability under the low income case, not the best case.

Borrowing to expand makes sense if the added income exceeds the added costs including interest. Borrowing to cover repeated losses usually does not.

Be honest about the role of off-farm income and household spending.

• Test payments against your low income case
• Count household spending and off-farm income honestly

What if you are having trouble paying?

Call your lender before you miss a payment. Many lenders prefer to work something out. Options may include restructuring, deferring or other arrangements, but they depend on the lender and the loan.

Do not ignore calls or letters. The USDA Farm Service Agency, extension offices and nonprofit credit counselors can sometimes help you understand options. Farm financial stress is common, and you do not have to carry it alone. If it feels overwhelming, 988 is a call or text line in the US.

• Call your lender before a payment is missed
• Ask what options exist and in writing
• Contact FSA, extension or a nonprofit counselor

Where can you learn more?

The USDA Farm Service Agency publishes fact sheets on farm loan programs, and farmers.gov offers general information. Extension educators teach financial management. The SBA offers resources for small business borrowers.

Use these resources to prepare questions, then talk with lenders directly. Programs and eligibility change, so ask for current information.

Last reviewed: November 12, 2026. Written by the Rural Farm Life Editorial Team. See our editorial policy.