A strong credit score is crucial for securing good terms and low interest rates on farm loans. If you’re planning to apply for financing to buy farmland or to cover your existing farm’s expenses, it makes sense to check your current credit standing and improve it if it needs some work.
Join us as we delve deeper into the importance of having a good credit score when applying for a farm loan in the US. We will also share tips on boosting your score to improve your chances of securing the best terms.
Understanding farm loans
Farm land loans have become the primary financing foundation for agricultural businesses in the US because they provide much-needed financial support for aspiring and established farmers. Also known as agricultural loans, these specialized financing solutions are tailored to the unique needs of the farming sector. More than just allowing you to purchase land/equipment and manage your farm’s daily operations, they can be a lifeline during difficult times or challenging seasons when you need money to weather financial hardships or survive downturns.
Why do farmers need farm loans?
Farm loans can be used to expand operations, cover harvest costs, invest in new equipment and technology, or cope with unexpected natural disasters. Farming is unpredictable and cyclical, so having access to reliable financing is important in stabilizing the growth and sustainability of an agricultural business.
Types of agricultural loans you should know.
To narrow down your options and find the most suitable financing for your specific ventures, you must first familiarize yourself with the different types of agricultural loans available. Here are some loans you can tap into as an agribusiness entrepreneur, rancher, or farmer:
- Equipment loans: These types of financing can be used to purchase farm equipment (such as tractors) and fund improvements (such as irrigation system upgrades).
- Operating loans: These loans can help you pay for livestock feed, fertilizer, seeds, and other daily expenses of running your farm.
- Agribusiness loans: These are designed for large agricultural businesses to cover various needs, such as buying supplies in bulk and expanding facilities.
- Real estate land loans: Farm financing allows you to buy farmland or improve your property.
- Improvement financing: This farm loan specifically upgrades or improves existing farm systems or structures.
- Farm credit loan for land: These specialized farm loans help you start or grow a farming business. It comes with competitive terms and rates to maximize your current farmland or make investing in more land areas more accessible.
The importance of a good credit score in getting a farm loan
When cash flow is limited, farm loans and grants can help cover your living and business expenses until you can get back on track. But you first need to build good credit to secure the best deals. A high credit score also opens doors to more loan options with reduced long-term costs and lower interest rates.
What is your credit score?
Your credit score is a crucial gauge of your financial health. Lenders use it to determine your likelihood of repaying your farm loans on time. This score is calculated from the data on your credit reports, which also contain details of your credit history. Ultimately, it can impact your ability to open new lines of credit or get approved for a farm loan.
Understanding your credit score and the factors that led to that number can help you improve it.
What is an ideal credit score?
Credit scores run from 300 to 850. The specific ranges for “good” and “bad” can vary depending on the credit scoring model used, but in general, your credit score is considered “good” if it’s between 690 and 719.
An “excellent” credit score is 720 and higher, while a score in the 630 to 689 range is considered ” fair.” Anything below 630 is considered “bad.”
Factors like the amount you owe, payment history, credit history length, recent credit score inquiries, and the accounts you use all influence your overall score. The best way to build good credit is to pay your bills on time and reduce new debt. You also need to monitor your credit score to dispute errors immediately.
How can farmers find out their credit scores?
By law, anyone can get a free credit report every year from Equifax, TransUnion, and Experian. These are the top credit reporting agencies, and you can get reports from all three through AnnualCreditReport.com. This is the only federally authorized website that can issue free credit reports.
Alternatively, you may call 1-877-322-8228 or fill out the Annual Credit Report request form and send it to this address:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
Why do credit scores matter to lenders?
Aside from allowing lenders to gauge your ability to make payments, your credit score is also used to evaluate your loan application and determine your eligibility for farm loans. But it is not the only element they look at. In addition to a good score, lenders are also looking for a history of timely payments and a low debt-to-income ratio.
These factors also impact your chances of getting approved.
High credit card balances and late payments can lower your credit score and reduce your chances of getting approved for a loan. These indicate that you may have difficulty managing your debt and overall finances.
By understanding how your credit score is calculated, you can take steps to improve it and secure the best financing for your farm’s expenses.
What affects a farmer’s credit score?
In addition to high debt balances and late payments, other factors can negatively impact your score. For example, applying for multiple new credit accounts quickly can be risky because it can lower your average credit age and potentially increase your credit utilization ratio.
How long you’ve had your accounts also matters. Older credit accounts show that you’ve been responsible for your finances longer.
But in some cases, it might be good to have newer accounts in your portfolio to provide lenders with a more up-to-date picture of your creditworthiness. What’s important is to show that you manage your debt and borrowing wisely by keeping your credit card balances low and making payments on time.
Ultimately, understanding what impacts your credit score can help you make informed financial decisions. It can also serve as a guide for improvement and understanding its significance in securing farm loans.
How to improve your credit score for a farm loan
If you have recently seen your latest credit score and it’s less than desirable, don’t worry — there are things you can do to improve it so you can secure more favorable interest rates and terms for your farm loan.
- Diversify your credit mix by maintaining a variety of loans like student loans, auto loans, and home loans. This shows lenders that you can handle multiple debts responsibly, which makes them more likely to trust you with a farm loan. Lenders also often view a diverse credit mix as less risky because it indicates that you’re not overly reliant on a single type of credit. In some cases, this strategy may also lower your credit utilization ratio (the debt you owe compared to your available credit).
- Pay debts on time: Paying on time can positively affect your credit score. Consistent and timely payments show lenders that you are reliable in fulfilling your financial obligations.
You might benefit from loan programs with flexible underwriting requirements if you’re a new farmer with a limited credit history. Some programs even offer down payment assistance to help offset high closing costs.
Conclusion
Farm loans can help farmers like you secure sufficient funding for your business. By finding out your credit score and taking steps to build strong credit, you are taking control and giving yourself a better chance of getting the best terms. Think of your credit score as an investment in your future — after all, having a good score can provide you access to resources that would otherwise be inaccessible.
Although having strong credit is crucial to getting farm loans, it’s not the end of the world if your score is below average. You can always explore alternative financing to buy farmland or grow your agricultural operations, even with a limited or no credit history.
Discover farm loans from Private Capital Investors
Private Capital Investors can help you secure the farm loan you need.
The Direct Loan Program offers emergency, farm ownership, and operation loans through Farm Loans. The Guaranteed Loan Program provides farm ownership, operation, and conservation loans.
Start or grow your business with a farm credit loan.
Through farm credit loans for land, you can start a farm or grow your existing farming business with competitive terms and rates. These farm loans provide the financing to increase profitability and productivity.
Specialized loans for ranchers
We also offer access to farm ranch loans for mixed agricultural businesses and ranchers. These farm loans offer the flexibility and financial resources to manage livestock and crop production. The financing can be used for various purposes, such as buying cattle, building a ranch, and improving farm structures.
Ready to be your agricultural financing partner
Private Capital Investors is ready to help you navigate farm loans in the US. Our team of private commercial real estate lenders will provide the resources and help you find custom financial solutions for your needs. You may call 972-865-6206 to learn more about our farm loans.
