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Farm Lenders

americanfarmfi on February 3, 2023

An Overview of Farm Lenders

Farm expansion requires capital. If a farmer or investor doesn’t have the capital on hand in the form of cash or equity in other assets (i.e. land), they will likely go to a bank to acquire the necessary funds to grow their business. The question is, what lender is the best to grow your farm?

Hometown Farm Banks

For most farm towns, there is a local bank where farmers can head into town during business hours to set up an appointment with the loan officer to apply for a loan.

Once the farmer has an appointment with the loan officer, they go through the traditional experience of getting a loan: filling out standard paperwork, providing information about their personal and business life, and talking to the loan officer about the intended use of proceeds. Some folks might not feel very comfortable sharing so much information with the banker that they will see at the Friday night football game or at church on Sunday. Others may appreciate the personal relationship with a local banker that comes along with a hometown farm bank.

Commercial Banks

Other lenders that can provide funds for farmers are larger, corporate, commercial banks. They can offer competitive rates for loans, but not all of them provide lending for agriculture related borrowing needs. There are a few commercial banks that specialize in ag lending. They will have remote offices or branches to provide a local presence to farmers. Like a farm bank, larger institutions will have written applications and approval processes to give farmers funds for their growing operations.

Farm Credit Banks

Farm Credit was created in 1916 with the purpose of providing lending for rural communities throughout the U.S. Farm Credit Banks, and their credit associations are cooperatives that lend to customer-owners (borrowers become part owners when they get a loan from a Farm Credit association bank). Farm Credit banks pay patronage dividends back to customer-owners when the banks have had a successful year. Farm Credit banks are regulated by the Farm Credit Administration.

Government Agencies

If working with the local bank or a larger private commercial bank isn’t the right fit for you, another lender for farm needs is Uncle Sam. The U.S. Department of Agriculture and Farm Service Agency (FSA) provide a variety of loan programs for buying land, operating loans, microloans, and down payment assistance.

The government lenders are known for having special assistance programs for first time farmers, minority, women, and Native American farmers.

The FSA offers exceptionally low rates and sometimes lower down payment requirements compared to private lenders, but the application and approval process can be longer to complete. There are very strict criteria to qualify for government loans and the approval and closing process for these loans are known to be longer than a private bank loan. For some, the lower rates and special programs are worth it to work through the loan application and approval process.

Digital Intermediaries

The last of the common types of farm lenders are digital intermediaries. American Farm Financing is a digital intermediary. AFF is not a farm bank or lender and doesn’t actually provide funds to borrowers. Digital intermediaries provide a quick, easy, digital application and approval process that can set borrowers up with multiple lenders that may best suit their needs. Instead of driving into town, a digital intermediary takes the most basic information necessary to get a loan and packages it into a quick online form. A farmer picks out their preferred loan term with the rate that is available Once you hit submit, a decision can be made. Once approved, funds can be accessed within days. You may or may not have a designated loan officer for all digital intermediaries – the goal is to get capital to farmers quickly, rather than spend more time working through your operation.

So, there are plenty of ways to get access to capital to buy farm land or get operating funds. AFF is rapidly providing solutions to simplify and speed up the process for farmers, landowners, and investors alike.

Found the farmland you are interested in purchasing?

Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.

See My Rate

Farm Loans in Minnesota

americanfarmfi on February 3, 2023

Introduction

Farm sale prices are determined by a number of factors, two of which are the productivity (yield) and the rental income. If a farm is able to produce more bushels of corn or beans compared to the farm down the road from it, it is worth more when it comes time to sell. The same can be said about the rental income from a farm. If your farmer pays you a more competitive rent compared to farms in the area, the farm is worth more in a sale.

Minnesota Average Corn Yield for 2021

	County	State	Year	Commodity	Average Value
1	Waseca	Minnesota	2021	Corn	213.7
2	Watonwan	Minnesota	2021	Corn	210.1
3	Freeborn	Minnesota	2021	Corn	208.1
4	Steele	Minnesota	2021	Corn	206.2
5	Sibley	Minnesota	2021	Corn	203.9
6	Nobles	Minnesota	2021	Corn	203.3
7	Blue Earth	Minnesota	2021	Corn	201.5
8	Martin	Minnesota	2021	Corn	195.3
9	Cottonwood	Minnesota	2021	Corn	195
10	McLeod	Minnesota	2021	Corn	194.4

Minnesota Average Cash Rent for 2021 – $177

Minnesota traditionally has competitive cash rents for non-irrigated tillable row crop farmland in the Midwest. The average cash rent earned throughout the state in 2021 was $177 an acre. Below is a chart of the highest average cash rents by county. 2021 Non-Irrigated Cash Rent County Leaderboards

	State	County	2020 Avg. Cash Rent	2021 Avg. Cash Rent
1	Minnesota	Sibley	$249	$250
2	Minnesota	Rock	$224	$249
3	Minnesota	Blue Earth	$217	$238
4	Minnesota	Faribault	$223	$237
5	Minnesota	Watonwan	$226	$235
6	Minnesota	Martin	$221	$232
7	Minnesota	Dodge	$210	$232
8	Minnesota	Le Sueur	$221	$231
9	Minnesota	Jackson	$198	$229
10	Minnesota	Mower	$217	$229

When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%) Here is an example of the ROI method: Rent = $750,000/100 acre X 2.5% Rent = $10,000 X 2.5% (0.025) Rent = $250 per acre. What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.

Minnesota Average Soil Productivity (PI) – 66.36 CPI

Minnesota has very productive soil for an array of agricultural purposes. Minnesota is known for its corn, soybean, sugar beets, and wheat production. The Minnesota Crop Productivity Index (CPI) ratings provide a benchmark for different soil types and how well they are suited for row crop production. Soil ratings range from 0 to 100 in Minnesota. Like most soil rating scales, the closer to 100 translates to higher potential productivity for that soil. Here are the top 10 Counties by average soil PI in Minnesota:

	County	State	Crop Productivity Index
1	Nobles	Minnesota	90
2	Chippewa	Minnesota	89
3	Martin	Minnesota	89
4	Traverse	Minnesota	89
5	Cottonwood	Minnesota	88
6	McLean	Minnesota	88
7	Douglas	Minnesota	88
8	Sibley	Minnesota	88
9	Jackson	Minnesota	87
10	Redwood	Minnesota	87

Minnesota Average Farm Sales – 2021 – $8,200.93/acre

As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are typically the highest counties in the state for average sale prices for farmland*. All of these extremely important pieces of data about farmland go hand-in-hand. Minnesota is known for its soil and crop diversity, growing different crops throughout the state to match the appropriate soil types. Land sale values will vary throughout the state to reflect this diversity. The average sale price for the top 10 counties in Minnesota in 2021 was $8,200.93/acre. Below is a chart showing the top 10 counties for average prices of farms for sale in Minnesota in 2021.

	County	Sold Year	Median Price per Acre	Total Acres
1	Carver	2021	10,392.16	2,401.20
2	Scott	2021	9,859.61	4,708.70
3	Sherburne	2021	8,848.43	3,205.90
4	Wright	2021	7,951.09	6,108.10
5	Olmstead	2021	7,754.38	10,182.80
6	Jackson	2021	7,669.40	8,013.50
7	Nicollet	2021	7,512.01	7,131.60
8	Sibley	2021	7,490.18	8,852.80
9	Faribault	2021	7,488.48	10,848.30
10	Mower	2021	7,043.60	11,938.10

*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.

Farm Loans in Minnesota

With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm loans and mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment. If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.

Found the farmland you are interesed in purchasing?

Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.

Farm Loans in Michigan

americanfarmfi on June 27, 2022

Introduction

Michigan Average Corn Yield for 2021

Michigan has a productive and consistent yield with a statewide average of 164.94 bushels per acre. The average yield for the top 10 counties in Michigan is 192.37 bushels per acre.

	County	State	Year	Commodity	Average Value
1	Huron	Michigan	2021	Corn	213
2	Sanilac	Michigan	2021	Corn	212
3	Tuscola	Michigan	2021	Corn	205.3
4	Monroe	Michigan	2021	Corn	193.8
5	Arenac	Michigan	2021	Corn	187.8
6	Bay	Michigan	2021	Corn	187.8
7	Lenawee	Michigan	2021	Corn	184.1
8	Midland	Michigan	2021	Corn	182
9	Hillsdale	Michigan	2021	Corn	179.1
10	Barry	Michigan	2021	Corn	178.8

Michigan Average Cash Rent for 2021 – $85.93

Michigan has modest values for cash rent averages throughout the Midwest. The average cash rent earned throughout the state in 2021 was $85.93 an acre. Below is a chart of the highest average cash rents by county.

2021 Non-Irrigated Cash Rent County Leaderboards

	State	County	2021 Avg. Cash Rent
1	Michigan	Huron	$215
2	Michigan	Gratiot	$162
3	Michigan	Ionia	$162
4	Michigan	Tuscola	$159
5	Michigan	Monroe	$151
6	Michigan	Lenawee	$149
7	Michigan	Clinton	$146
8	Michigan	Ingham	$136
9	Michigan	Bay	$134
10	Michigan	Van Buren	$134

The average cash rent of the top 10 cash rent earning counties in Michigan in 2021 was $154.80/acre. When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%) Here is an example of the ROI method: Rent = $1,000,000/100 acre X 2.5% Rent = $10,000 X 2.5% (0.025) Rent = $250 per acre. What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.

Michigan Average Soil Productivity (PI) – 40.54 NCCPI

Michigan is agriculturally diverse due to the average quality of the soil in regards to productivity. There are a multitude of types of crops grown and livestock raised. The statewide average for soil productivity is 40.54. In all states (except Illinois, Iowa, and Minnesota) soil productivity ratings are determined by the overall NCCPI (National Commodity Crop Productivity Index) developed by the NRCS (Natural Resources Conservation Service) The average soil productivity in the top 10 most productive counties in Michigan is 58.6.

Here are the top 10 Counties by average soil in PI in Michigan:

	County	State	Crop Productivity Index
1	St. Clair	Michigan	62
2	Sanilac	Michigan	60
3	Shiawassee	Michigan	60
4	Genesee	Michigan	59
5	Macomg	Michigan	59
6	Saginaw	Michigan	58
7	Hillsdale	Michigan	57
8	Ingham	Michigan	57
9	Lenawee	Michigan	57
10	Tuscola	Michigan	57

Michigan Average Farm Sales – 2021 – $6,406.37/acre

As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are usually the highest counties in the state for average sale prices for farmland*. All of these extremely important pieces of data about farmland go hand-in-hand. The average sale price for the top 10 counties in Wisconsin in 2021 was $6,406.37/acre. Below is a chart showing the top 10 counties for average sale prices offor farms for sale in Wisconsin in 2021.

*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.

Farm Loans in Michigan

With all of this data about yield, cash rent, and soil the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?”

Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment. If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.

Found the farmland you are interesting in purchasing?

Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.

Farm Loans In Wisconsin

americanfarmfi on June 27, 2022

Introduction

Wisconsin Average Corn Yield for 2021

	County	State	Year	Commodity	Average Value
1	Milwaukee	Wisconsin	2021	Corn	185.7
2	Pepin	Wisconsin	2021	Corn	176.8
3	Lafayette	Wisconsin	2021	Corn	117.2
4	Grant	Wisconsin	2021	Corn	115.15
5	Dodge	Wisconsin	2021	Corn	111.25
6	Rock	Wisconsin	2021	Corn	108.95
7	Green	Wisconsin	2021	Corn	108.95
8	Fond du Lac	Wisconsin	2021	Corn	108.75
9	Dane	Wisconsin	2021	Corn	107.9
10	Columbia	Wisconsin	2021	Corn	107.6

Wisconsin Average Cash Rent for 2021 – $138

Wisconsin reports solid and consistent cash rent year over year compared to other states in the Midwest. Although most tracts are smaller than other states, the land is productive and experiences consistent crops.

The average cash rent earned throughout the state in 2021 was $138 an acre. Below is a chart of the highest average cash rents by county.

The average cash rent of the top 10 cash rent earning counties in Wisconsin in 2021 was $186.80/acre.

2021 Non-Irrigated Cash Rent County Leaderboards

	State	County	2020 Avg. Cash Rent	2021 Avg. Cash Rent
1	Wisconsin	Lafayette	$217	$214
2	Wisconsin	Grant	$209	$210
3	Wisconsin	Brown	$183	$190
4	Wisconsin	Green	$198	$183
5	Wisconsin	Walworth	$181	$181
6	Wisconsin	Dane	$182	$180
7	Wisconsin	Rock	$195	$179
8	Wisconsin	Kewaunee	$183	$178
9	Wisconsin	Columbia	$176	$177
10	Wisconsin	Calumet	$177	$176

When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%)

Here is an example of the ROI method:

Rent = $1,000,000/100 acre X 2.5%
Rent = $10,000 X 2.5% (0.025)
Rent = $250 per acre.

What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.

Wisconsin Average Soil Productivity (PI) – 47.70 NCCPI

For most, Wisconsin is known for its rolling hills full of dairies that produce some of the best cheeses in America. But Wisconsin also produces its own fair amount of corn and soybeans with some of the most fertile land in the Midwest.

In all states (except Illinois, Iowa, and Minnesota) soil productivity ratings are determined by the overall NCCPI (National Commodity Crop Productivity Index) developed by the NRCS (Natural Resources Conservation Service)

The average soil productivity in the top 10 most productive counties in Wisconsin is 64.6.

Here are the top 10 Counties by average soil in PI In Wisconsin:

	County	State	Crop Productivity Index
1	Kenosha	Wisconsin	70
2	Racine	Wisconsin	70
3	Pierce	Wisconsin	67
4	Dodge	Wisconsin	65
5	Vernon	Wisconsin	65
6	Crawford	Wisconsin	64
7	Grant	Wisconsin	63
8	Walworth	Wisconsin	62
9	La Crosse	Wisconsin	61
10	Iowa	Wisconsin	59

Wisconsin Average Farm Sales – 2021 – $6,406.37/acre

The average sale price for the top 10 counties in Wisconsin in 2021 was $6,406.37/acre. Below is a chart showing the top 10 counties for average sale prices offor farms for sale in Wisconsin in 2021.

	County	Sold Year	Median Price per Acre	Total Acres
1	Kenosha	2021	9,962.96	11,839.00
2	Ozaukee	2021	7,880.63	5,556.20
3	Washington	2021	7,500.00	14,095.00
4	Walworth	2021	6,552.23	25,019.00
5	Racine	2021	5,833.33	10,251.00
6	Brown	2021	5,681.82	16,258.00
7	Sheboygan	2021	5,570.97	18,101.00
8	Dane	2021	5,147.06	40,371.00
9	Lafayette	2021	5,059.65	34,732.00
10	Calumet	2021	4,875.00	13,012.00

*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.

Farm Loans in Wisconsin

With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment.

If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.

Found the farmland you are interesting in purchasing?

Farm Loans In Illinois

americanfarmfi on June 9, 2022

Introduction

Illinois Average Corn Yield for 2021

Farmland in Illinois that sells for the highest price is more than likely the most productive land when discussing corn and soybean yields. Here is a list of the top 10 counties in Illinois by corn yield (bushel per acre) in the 2021 growing season.

	County	State	Year	Commodity	Average Value
1	Champaign	Illinois	2021	Corn	222.4
2	Moultrie	Illinois	2021	Corn	221.8
3	Macon	Illinois	2021	Corn	221.1
4	Woodford	Illinois	2021	Corn	220.2
5	Coles	Illinois	2021	Corn	220
6	Christian	Illinois	2021	Corn	218.6
7	Stark	Illinois	2021	Corn	217.2
8	Sangamon	Illinois	2021	Corn	215.6
9	Peoria	Illinois	2021	Corn	215
10	Marshall	Illinois	2021	Corn	214.5

Illinois Average Cash Rent for 2021 – $227

Illinois typically has some of the highest and most competitive cash rents for non-irrigated tillable row crop farmland in the Midwest. The average cash rent earned throughout the state in 2021 was $227 an acre. Below is a chart of the highest average cash rents by county.

2021 Non-Irrigated Cash Rent County Leaderboards

	State	County	2020 Avg. Cash Rent	2021 Avg. Cash Rent
1	Illinois	Macon	$294	$311
2	Illinois	Moultrie	$284	$297
3	Illinois	Piatt	$281	$297
4	Illinois	Logan	$287	$291
5	Illinois	Sangamon	$292	$280
6	Illinois	Christian	$272	$278
7	Illinois	Menard	$260	$278
8	Illinois	De Witt	$266	$275
9	Illinois	Champaign	$274	$270
10	Illinois	Carroll	$264	$268

When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%)

Here is an example of the ROI method:

Rent = $1,000,000/100 acre X 3%
Rent = $10,000 X 3% (0.03)
Rent = $300 per acre.

Illinois Average Soil Productivity (PI) – 110 CPI

Illinois has some of the best soil in the world, let alone the Midwest. Central Illinois and North Central Illinois farmland are home to the best soil productivity in the state. Prime agricultural land classes (Class A, Class B, and Class C) soil types can be categorized as follows:

Class A: 133-147 CPI

Class B: 117-132

Class C: 100-116

Soil ratings equal to or below 99 on the CPI are not classified as prime agricultural land.

Here are the top 10 Counties by average soil PI in Illinois:

	County	State	Crop Productivity Index
1	Piatt	Illinois	135
2	Macon	Illinois	134
3	Champaign	Illinois	133
4	DeKalb	Illinois	133
5	Logan	Illinois	131
6	McLean	Illinois	131
7	Douglas	Illinois	130
8	LaSalle	Illinois	129
9	Woodford	Illinois	129
10	Kendall	Illinois	128

Illinois Average Farm Sales – 2021 – $11,394/acre

As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are the highest counties in the state for average sale prices for farmland. All of these extremely important pieces of data about farmland go hand-in-hand. Illinois is known for its renowned soils and agricultural production and this is reflected in the land sale values. The average sale price for the top 10 counties in Illinois in 2021 was $11,394/acre. Below is a chart showing the top 10 counties for average sale prices for farms in Illinois in 2021.

	County	Sold Year	Median Price per Acre	Total Acres
1	Kane	2021	15,821.21	5,064.79
2	Macon	2021	11,515.15	3,021.12
3	Marshall	2021	11,433.23	4,406.59
4	Champaign	2021	11,305.305	12,831.15
5	Woodford	2021	11,236.38	4,579.40
6	Sangamon	2021	11,000	8,891.99
7	De Witt	2021	10,654.76	4,221.90
8	DeKalb	2021	10,405.595	9,385.65
9	McLean	2021	10,325.905	15,110.97
10	Ford	2021	10,251.24	4,503.23

Farm Loans in Illinois

With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment.

Found the farmland you are interested in purchasing?

Now find your loan partner that will make it a reality. Get approved in seconds with an all-digital application from AFF , who will work with you to make sure you get the best rates possible.

Understanding Farm Loans and Farm Financing Terms

americanfarmfi on May 9, 2022

Introduction

There are several types of farm loans, including 1) operating loans to fund day-to-day running of the farm, 2) cash rental loans to fund annual farm rentals, 3) farm mortgages to finance the purchase of farmland, 4) farm refinancings to refinance a farm mortgage into a better rate / terms, and 5) term loans to fund equipment and machinery. We’ll dive into each of these farm loan types as well as some farm financing terminology below.

The Farming Cycle

Before we get into each of the farm loans, it’s important to explain why they all exist. Some (like farm mortgages) are self-explanatory: farms are expensive and most folks need a farm loan to make the purchase. An operating farm loan is necessary for most farmers in the Midwest because of the agricultural cycle. For row crops, planting occurs in the springtime (usually from March to May). Harvest occurs from September through Thanksgiving. After harvest, farmers sell their grain, earning their revenue anywhere from September through December. So there’s a big mismatch between when most expenses are made and when revenue is earned. Farmers have to buy seed, new equipment, finance labor, and any fertilizers at the start of the season but won’t make revenue for at least six months. Operating farm loans help provide funding during the first half of the year. Farmers pay off the loan with the revenue earned post-harvest.

The same concept is true for cash rent loans. Cash rent is usually due at the start of the season (March 1st) and can be as much as 40% of a farmer’s full-year expenses.

Operating Farm Loans

Operating loans are typically structured as credit facilities. This means that farmers can draw (or borrow) as much as they need while the loan is outstanding. A typical operating farm loan is signed a month or two ahead of planting season (March 1) and is due back to the bank anywhere from 12 – 15 months later. Usually, a borrower only pays interest on the funds they actually borrow. For example, a farmer could sign a $1m operating loan, but only end up using $800k. The farmer would only pay interest on the $800k borrowed. It’s advisable to create a business plan for the year and apply for a farm loan that would cover unforeseen expenses. That way, it’s easy to access funds as and when needed. It is possible to make an operating loan larger during the season but could just take time to be approved.

Operating farm loans are typically secured by collateral, or property that the borrower owns and the bank could claim if the loan is in default. Collateral can be tractors or even the crops that the farmer grows.

Cash Rent Loans

Cash rent loans are unsecured loans to finance cash rent. Unsecured loans are not secured by collateral. Our cash rent loan has a springing lien, meaning that if the loan is in default, collateral will then be required. This is beneficial for borrowers who do not have to assign collateral at the start of the loan.

Farm Mortgages

Farm mortgages are loans used to purchase farmland. They can be both fixed and variable. Fixed rate loans maintain the same interest rate throughout the life of the loan. Variable rate loans can have a fixed rate for the first months or years of the loan – they will then change rate in line with a pre-determined benchmark. Farm mortgages can be up to 30 years in duration. The longer the loan, the more interest a borrower will pay to the lender – however, the longer term could provide more affordability. A $1m loan spread over 30 years results in smaller annual payments than a $1m loan spread over 10 years.

Farm Refinancings

Farm refinancings are done when better terms are available for a farm mortgage. If a borrower has a 30-year farm mortgage outstanding at a 5.0% rate and rates drop down to 4.0%, a borrower would want to refinance, or change their loan, into the lower rate option to save money. If a borrower also makes more income or has paid off other personal debt, lower rates might be available to them that were unavailable at the time of the original farm loan. Before deciding to do a refinance, a borrower should compare the total savings to any fees to be taken out at the time of the loan.

Farm Term Loans

Term loans are mid-length loans that can be used for more intermediate expenses. Unlike operating loans that cover expenses to be paid off in one year, term loans are usually 3 – 7 years in length and are used to pay for equipment, machinery, and livestock. Term loans have both fixed and variable rates and also use a Loan to Value (LTV) concept.

Farm Loan Fees

Farm loans are subject to similar fees as personal and residential loans. An origination fee is a fee for the bank to originate, or create, the loan. It covers general paperwork and processing. A servicing fee is an ongoing fee to cover the maintenance of the loan. Banks may or may not charge these fees, but it is important to ask at the outset.

For farm mortgages, there will be additional fees for appraisals and title services. An appraisal is an authorized check of value by a bank or a verified third party. The bank will need the appraisal done before originating the farm mortgage. This is to verify that the land will produce income and the loan value is defensible. A title check is performed to ensure that the farm is being sold without debt or obligations attached to it.

How are Farm Loan Fees Calculated?

Farm fees are typically calculated by basis points (bps). A basis point is 1/100th of a percent. In other words, 100 basis points = one percent. A standard origination or servicing fee is 50bps (0.5%) of the loan value.

Appraisals and title checks are usually done for a fixed fee. Appraisals can typically be anywhere from $300 – $1,500.

Conclusion

AFF can help with any of your farm financing needs. Reach out to us at (872) 246-9087 for more on our interest rates and no-fee loans.

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Lien Priority and How It Affects Your Operating Loan

americanfarmfi on March 29, 2022

Maybe you’ve heard lenders talk about the lien position they need to take out on your operating loan – first, second, best available. We’ll dive into what these terms mean and how they relate to your farm loan structure.

Farm loans: What is lien priority?

Lien priority is the order in which lienholders get paid out after a default. A lienholder is someone who has a lien, or a right to a payout, following a default.

Secured loans are farm loans that are backed by collateral. For example, a typical mortgage is backed by the property itself. If you default on making monthly payments on your farm, a lienholder would be able to claim the land as collateral.

Continuing with this example, a first lien holder would be the first lender to recoup payment from the land. Let’s look at a practical scenario.

Let’s say you have a $1,000,000 farm, which has a $500,000 mortgage attached to it, which is now in default. If the mortgage-lender is a first-position lienholder (they likely will be), they would be entitled to receive their money back via the farm. The lender would reclaim control of the farm and auction it off, claiming their $500,000 before the rest of the proceeds were divided amongst other lienholders. After the first-position lienholder is paid, the second, third, etc. would get paid. Another lien position, “the best available”, is the lowest lien position available at the time of loan origination. If there are already two lenders, the “best available” lender would take the third position.

Lien priority and operating loans

Depending on the size of your operating loan, your lender may request a lien position against your crop, your farm, or any other available assets. What does this mean for business planning? As a farmer, you need to prioritize which lenders will have the best positions on your assets based on your different relationships.

AFF’s farm loan offerings

We offer operating loans that come with a springing lien. A springing lien takes the best available lien position only after a default. This means that at loan signing, the farm loan is unsecured and would stay that way so long as normal payments are made. We want to free up your collateral so you can use it with other lenders towards other farm improvements. We’re making sure farmers get access to the best capital quickly.