Statistics reveal that there are over 11,000 farms in 39 states. Most of these businesses depend on farmland loans to keep running.
Whether you want to buy land for farming or looking to improve on an existing agribusiness, an agricultural loan can support your financing needs.
Many online resources talk about how-to take-out farmland loans and improve your chances of getting approved. But what happens during closing?
This blog walks you through the process so you can navigate everything smoothly and avoid any last-minute surprises.
What happens after you have been approved for a farm loan?
After securing loan approval, you’ll finalize your farm purchase through closing. Third parties will handle most of this process, but be prepared to provide additional information about your business structure, existing loans, and current insurance.
Following approval, an independent appraisal determines the property’s value. Expect this process to take up to eight weeks.
The lender then investigates the property’s legal status by reviewing documents and then verifies that you have proper insurance. Once everything checks out, they finalize the loan paperwork and calculate your closing costs.
The entire post-approval process involves several parties: you, the lender, real estate agents, title companies, and appraisers.
Now, let’s take a closer look at what happens during every stage of the closing process:
1. The appraisal
The farmland loan process relies heavily on the appraisal document. This independent assessment estimates the fair market value of the agricultural property you want to purchase.
By understanding the land’s worth, lenders can minimize risk and ensure their exposure does not exceed the property’s value.
A state-licensed, qualified appraiser specializing in agricultural property values will conduct your farm loan appraisal.
This value is determined based on the land’s physical conditions, location, and amenities. Appraisers use different techniques to evaluate agricultural property, including:
Sales comparison approach:
Using this method, an appraiser examines recent sales of similar properties in the area (usually within the last six months and a 10-15 mile radius). By comparing your property’s features to these comparable sales, the appraiser can estimate its market value.
Cost approach:
This strategy uses a valuation formula that considers the land value, the cost of rebuilding any existing structures on the property, and the depreciation of those structures over time. It estimates the replacement cost of the entire property minus the wear and tear of the buildings.
Income approach:
This method focuses on the potential income the property might generate. It is most suitable for income-producing agricultural CRE (such as those with established crops or livestock operations). Here, the appraiser estimates the property’s net income (income minus expenses) and uses that figure to derive its market value.
2. The property documentation process
Lenders want to see documentation about the property—including accurate tract maps, property surveys, soil maps, and legal documentation of ownership— as part of the farmland loan closing process.
You may also need to provide revenue and production records if you buy a farm or improve your current one.
3. Investigation
Lenders must be careful—they do not take everything at face value. Even if you provide all the necessary documentation, they will verify everything and conduct a proper investigation.
At this point, lenders will cross-check all the details you provided when you applied for a farmland loan.
They may perform a credit check to obtain accurate and factual information about your financial standing to determine the potential risks and your probability of repayment.
4. Insurance verification
Lenders will ask for proof of insurance to mitigate risk. They want to know if you have enough coverage in case something happens to the land you want to purchase, such as fire, natural disasters, or vandalism.
5. Loan paperwork
During the closing stages of your farmland loan, your lender may ask you to provide the following documents, so make sure they’re ready:
- Loan application
- Proposed collateral identification
- Federal tax returns
- Balance sheets
- Current crop and market inventory
- Income statements
- Equipment list
- APH yield reports
- Debt schedule
- A/R and A/P aging reports
- Debt and asset statements (bank statements)
- Income and expense forecasts
6. Calculating the total cost of the loan
The ‘total cost’ of a farmland loan refers to all the expenses associated with securing it. It includes the loan principal, interest, and closing costs (the one-time fees associated with processing and finalizing the loan, which can vary depending on location, loan type, and lender).
A loan estimate outlines the total cost of the loan and details the estimated monthly payments.
How to speed up a farm loan closing
Closing a farmland loan can be quick and smooth if you’re ready to provide your lender with all the necessary details and documents.
For this reason, it helps to organize your documentation before you even apply. Responding to the lender’s queries efficiently and quickly is also essential.
In most cases, lenders will require you to provide a land purchase contract, articles of organization, insurance, and tax ID.
Ensure that all the details you provide are up-to-date to avoid delays, and consult a lawyer if you need clarification about the legalities. An expert can review your paperwork and keep everything organized.
Below is a more in-depth look at the things you can do to close a farmland loan quickly and efficiently:
Land purchase contract
An active purchase and sale agreement or property deed shows your lender that the farmland is being legally purchased, including any existing structures.
Many states require this in writing, making it essential to buy and sell agricultural land Loans and secure any relevant loans to purchase a farm. Essentially, it creates a legally binding contract between the seller and buyer.
Insurance
In agribusiness, insurance can do more than offer protection against significant loss, damage, or disasters. It can provide safety against supply and demand fluctuations, daily operational challenges, and unpredictable weather, making it essential for risk management and future farm-proofing.
Agricultural insurance offers a safety net for your farm operation by covering essential areas like livestock, general liability, and machinery.
Beyond these direct benefits, it also serves as an alternative form of collateral for securing a farmland loan—and this can be particularly helpful if you’re a new farmer and don’t have a large amount of equity in your existing property.
The key is demonstrating your commitment to risk management through insurance to give lenders greater confidence in your ability to repay loans, even during challenging times.
Articles of Organization
A farm, no matter the size, is a business that must be registered with relevant authorities. You must show lenders a formal legal document called Articles of Organization to show you intend to operate a legal business.
Filed at the state level, this document establishes your Limited Liability Company (LLC) and outlines all members’ rights, duties, and obligations. Ensure you have your Articles of Organization when applying for a farmland loan to make the closing process faster and smoother.
Tax ID
All taxpayers have a tax identification ID. Lenders require this information to verify your identity and ensure your farmland loan application is legitimate.
What else do you need to know about closing a farm loan?
The farmland loan closing process can sometimes feel long. After all, the lender needs to thoroughly examine your application and the property itself to ensure they’re providing funding to a qualified borrower and investing in a suitable piece of land.
Your lender needs to verify your financial stability and farming experience to assess your ability to repay the loan.
This includes reviewing documents related to your income, existing debts, and business structure.
They will also perform due diligence on the land itself, looking at factors like:
- Size and location – They will send an appraiser to determine the property’s value based on size, location, and soil quality. This helps ensure that the loan amount is proportionate to the value of the land.
- Climate – Lenders also consider climate risks, as extreme weather events can affect the farm’s productivity and your ability to repay the loan.
Ready to get a farm loan?
Your choice of lender can also affect how long the closing process will take. Make sure you have the right financial partner with extensive experience in these loans.
Apply for a farmland loan at Private Capital Investors and close in as short as two weeks. We offer farmland loans to support various needs, including land purchases, emergencies, and operational expenses. We have experience providing loan amounts from $3 Million to $50 Million, and you could get approved with a minimum credit score of 680.
Start your farmland loan application here or call 972-865-6206. You may also request additional details by emailing info@privatecapitalinvestors.com.
