Most farmers need financial backing at some point to either launch their operations or grow their agricultural business. Unfortunately, a large number of these loan applications are rejected — this high rate of rejection suggests that it’s not uncommon for small business owners, possibly including some you know, to face this hurdle.
It would certainly simplify matters if lenders approved every agriculture loan application, but that isn’t feasible. Lenders need to be as prudent with their funds as you would be with your prized possessions.
Imagine you’ve just bought a top-of-the-line tractor that’s essential for your farm’s operations. Suddenly, everyone you know wants to borrow it for their own projects. You’d naturally think twice before handing over the keys, right? This is how lenders view your agriculture loan application — they need to assess whether they can trust you with their money, just as you need to decide who can handle your tractor responsibly.
Why are agriculture loans denied?
- Incomplete application
Lenders rely heavily on the information you provide in your application. If it’s missing documents, has unfilled sections, or contains very obvious errors and inconsistencies, you’re practically inviting them to turn you down. This carelessness makes you look irresponsible.
What you can do: Start gathering your financial records well before the submission deadline so that you have enough time to review everything and make sure that your application is thorough and error-free. Always triple-check all the requirements. You want your farm loan application to be complete and accurate.
- Lack of sufficient experience
Lenders will evaluate your agricultural operation’s history and cash flow to assess your ability to meet your financial obligations. If your farm is new, it might not have the track record needed to win their confidence.
What you can do: Make sure your business’s operational history meets the loan requirements before you apply to avoid unnecessary rejections. If your farm is too new, don’t worry — there are loans designed especially for businesses like yours. Focus your efforts on applying for those instead.
- Inadequate credit score
Your credit score summarizes your key financial behaviors — particularly how quickly you pay off debt and whether you meet minimum payment obligations. It’s no surprise that lenders want to see this score.
What you can do: Most farm loans have clear credit score requirements that you should check before applying. If yours doesn’t make the cut, don’t waste your time and find another financing solution for your situation.
- Unimpressive business plan
Your business plan tells lenders how you intend to use their money. They want to know the specifics of how exactly you plan to grow your farm’s income and repay the loan. Having a solid business plan for your farm answers these questions and shows that you have thought through and organized everything.
What you can do: Make sure that your business plan is detailed and compelling. It should clearly outline how the funds will be used to reassure lenders of your organizational skills and thorough planning.
- Insufficient collateral
Farming can be an unpredictable business. Even the most well-run farms may encounter challenges that render them unable to pay their loans on time, from crop failures to pest infestations and even supply chain disruptions. To manage this risk, lenders require collateral that they can seize if the borrower defaults. This is why securing a loan can be tough if you don’t have sufficient collateral, like a property or vehicle.
What you can do: Evaluate your assets and offer something of value as collateral to
strengthen your case and increase your loan application’s likelihood of approval.
What should you do when your agriculture loan application is rejected?
- Read your rejection letter.
Lenders provide a written explanation when they deny your farm loan, and the Federal Trade Commission requires them to be very specific about their reasons for the decision. Read the letter to understand why they turned down your farm land loan application. Does it say that your income is too low? Is your farming experience insufficient? If the lender’s feedback is vague, you have the right to request more detailed information within 60 days. You can then use this feedback as your guide to strengthening your next application.
- Check for any inaccuracies on your credit report.
Regularly review your credit report (ideally three times a year) to check if there are inaccuracies that might be negatively impacting your creditworthiness. After all, errors or outdated information can lead to unexpected denials.
You can access your credit report for free at AnnualCreditReport.com and dispute any inaccuracies with credit bureaus (Experian, Equifax, or TransUnion). Try to keep old credit accounts open to establish a longer credit history, which can help you show responsible credit management to lenders for future applications.
- Steer clear of risky loans.
It might be tempting to turn to predatory lenders if you face financial challenges after your loan application is denied. Such lenders promise quick funds with extremely high interest rates and terms so stringent that they can lead you to spiral down into even more debt. Look for safer alternatives instead. Explore agricultural support programs that offer more favorable terms.
- Reduce your existing debts in the months following a rejected farm loan application.
Did your agriculture loan get rejected because of a high credit utilization or debt-to-income ratio? This tells lenders that you might find it hard to pay off another addition to your many loans.
When you apply for a loan, lenders will assess all your other financial obligations — not just the immediate loan. You’re in the safety zone if you have plenty of accessible credit and use only a small amount, as this demonstrates responsible borrowing. But if your available credit is maxed out, it can scare off potential lenders.
This happens quite often in agricultural businesses. When your farm’s expenses are high and its income is lower than expected (possibly due to unpredictable market prices or lower crop yields), it can create a financial imbalance that leads to high credit utilization. Your debt-to-income ratio (which compares your monthly debt payments to your monthly income) might also increase. These financial metrics can worsen when your farm costs exceed earnings, making it appear to lenders that you’re at a higher risk of being unable to repay any new loans.
The solution is to focus on reducing these ratios. Manage your debts and maintain accounts with zero balances to increase your total available credit and improve your credit utilization ratio.
- Build your credit with small steps.
Contrary to what you might think, having no credit history because you haven’t had many loans or credit accounts doesn’t reflect financial irresponsibility — it simply means you need to establish a longer credit history. Start with secured credit cards or credit builder loans to help you demonstrate financial responsibility and enhance your credit score.
- Showcase your financial responsibility.
If you have a history of late or missed payments, automate your payments to ensure that you never miss a due date. Set reminders for accounts where automatic payments aren’t possible to keep on top of your financial obligations. Paying consistently can boost your credit score and strengthen your standing with lenders.
- Explore SBA loans and other financing sources.
The agricultural sector (just like restaurants and construction) is notoriously volatile, which naturally makes banks and traditional lenders a lot more cautious. It’s doubly important to make your business plan and loan application impeccable.
That said, rejections can happen even with the best preparations. Consider applying for support through the Small Business Administration if you find yourself in this situation. They offer programs specifically for business owners who face difficulties obtaining traditional loans.
The lending market is diverse and there are loans designed for nearly every situation. Treat any rejection as an opportunity to fine-tune your business approach and strengthen your future applications.
Preventing an agriculture loan denial
Good communication goes a long way in making your agriculture loan application successful. Show your lender exactly what they want to see. Provide detailed information about your farmland’s value, your farm’s production history, and even your marketing strategies. Be transparent — this builds trust and shows that you are committed to your farm’s success.
Seek expert advice if you’re not sure about the loan application process or have concerns. Talk to our team here at Private Capital Investors. We are known for commercial real estate loans, but we also provide direct farm loans for agricultural business owners. We understand farm finance and how agricultural businesses operate, so we can review your application from an informed point of view.
You can use our agricultural loans to buy land and/or build essential infrastructure like irrigation systems and barns, as well as to purchase equipment. You need a credit score of 680 to qualify.
- We offer loans ranging from $3 million to $50 million.
- Choose from adjustable and flexible rate options.
- Enjoy a 30-year amortization period with no penalties for early repayment.
- Close in as little as two weeks and get up to 70% LTV.
Our agriculture loans are available across the country. Call 972-865-6206 or fill out our loan request form to get started.
