How to Get a Farm Loan with No Down Payment

How to Get a Farm Loan with No Down Payment

How to Get a Farm Loan with No Down Payment

Starting or expanding a farm is a big financial decision — but one that you don’t have to make alone. The U.S. government, commercial lenders, and online banks offer financing options that can get your farm running and growing. If you’re wondering how to get a farm loan with no money, keep reading.

Can you start a farm with no money?

The short answer is yes. You can get loans or other financing that don’t need you to have a down payment to start a farm or expand an existing farm. 

It can be especially challenging to get financing as a new farmer. That’s why the U.S. government is trying to help through loans focusing on farmers in their first 10 years (called beginning farmers) that don’t require amazing credit from its borrowers. These are called Farm Ownership Loans offered by the Farm Service Agency (FSA), which is a part of the U.S. Department of Agriculture (USDA).

In 2021, the agency handed out $2.1 billion in farm loans. Its “Beginning Farmers” loans are either guaranteed or direct and can offer up to 100% of financing, eliminating your need for a down payment if you qualify.

If you can’t meet the qualifications for an FSA loan, you can look into other financing options like credit lines or equipment financing that don’t need you to have a down payment. We cover these options below.

Ways to get a farm loan with no down payment

You have two main options if you want to get a farm loan without a down payment: Get financing that doesn’t require a down payment or get certain farm loans through the FSA. 

Many online lenders don’t require a down payment for their financing options, like lines of credit or equipment financing. You may not be able to borrow enough to start a new farm with these options, but you can fill in any gaps or expand your operations.

On the other hand, there are three kinds of Direct Farm Ownership Loans from the FSA, and two of them don’t require a down payment: the “regular” direct loan and the joint financing loan, which we cover in the next section.

The FSA also offers a Down Payment Loan, but it requires you to put down 5% of the purchase price toward the loan. The agency also has loans that target underserved communities, urban farmers, and organic farmers, as well as microloans for anyone needing less financing. Reach out to your state’s Beginning Farmer and Rancher coordinator at the USDA for help on how to get started and find the right loan officer.

Best farm loan financing options

You don’t need an excellent credit score or decades of farming experience to qualify for financing for your farm. Here are some of the best options when you’re searching for a farm loan.

Equipment Financing by LendSpark

What it is

If you are looking to expand operations on your farm, equipment financing is a great place to look. With an equipment loan, you can borrow money to purchase new equipment that you need to upgrade your farming operations — with no money down.

How much you can borrow 

Up to $2 million

What it costs

6% to 35% APR

Who it’s best for

This loan works best for someone who needs cash for one or multiple pieces of machinery to improve your farm’s efficiency or increase production. For example, if you need a new tractor for your farm business, you can use equipment financing to buy it.

Kabbage line of credit

What it is

A business line of credit allows the borrower to take out money as needed up to the predetermined limit. You can then pay it back and then borrow more. And it’s fast — with Kabbage, you can have funds in your bank account in as little as three days.

How much you can borrow 

$2,000 to $250,000

What it costs

9% to 36% APR

Who it’s best for

Because you can borrow less than other farm loan options, a line of credit works best for someone already running an existing farm but needs to expand or enhance their operations. Interest rates may be higher than for other loans.

Farm Ownership Loan (FSA)

What it is

Congress sets aside money in the USDA budget for this loan program, so the FSA finances these loans directly through the USDA. A Farm Ownership Loan can be used for many farm-specific purposes, including buying a family farm, expanding a farm, or improving operational efficiency on your farm and may lend up to 100% of your financing needs.

How much you can borrow 

Up to $600,000

What it costs

3.375% APR*

Who it’s best for

This loan is fantastic for someone who is a beginning farmer and wants to start a farm but doesn’t have the credit history or the cash to manage it. If you qualify for this loan, you’ll likely come away with low interest rates and good terms.

*Rates as of May 4, 2022

Farm Ownership Joint Financing Loan (FSA)

What it is

Think of this loan as a partnership — half is provided by the FSA and half is provided by a commercial lender. It may or may not be a guaranteed loan by the FSA, and it can offer great interest rates if you qualify. 

How much you can borrow 

$2,000 to $250,000

What it costs

2% less than the direct farm ownership rate but not less than 2.5%

Who it’s best for

Anyone looking to combine an FSA loan with the offerings from a commercial lender. 

How to qualify for a farm loan with no down payment

To qualify for an FSA Farm Loan, you need to meet eligibility requirements, including:

  • Have at least three years of farm management experience, education, or training
  • Be allowed to live and work in the United States
  • Have an acceptable credit score
  • Be unable to get a loan with reasonable rates from another lender
  • Have no other USDA debt that has been forgiven in the past or owe money to the federal government

Also, keep in mind that you may be able to get a farm credit on your taxes

Which bank is best for agriculture loans?

The answer to this question is annoying: It depends. If you’re looking for an operating loan to help with cash flow with easy-to-hit qualifications, a quick loan application process without closing costs, and fast funding, an online lender may be best for you. Even if you have to pay higher interest, they may be able to provide your maximum loan amount quickly.

On the other hand, if you need enough funding at a good rate and are willing to spend more time and effort to obtain it, you might consider a U.S. government loan. The FSA can give qualifying applicants great interest rates for high loan fund amounts with good repayment terms. 

What kind of loan can I get for a farm?

There are several kinds of loans you may be able to use together or separately to start a farm or to expand your farm business. Here are a few options:

  • Government farm loan programs
  • Commercial real estate or land loans
  • Lines of credit
  • Equipment financing
  • Crop financing
  • Livestock financing

The type of financing you need depends on factors like the size farm you have and the appraised value of your farm.

How hard is it to get a loan to start a farm?

The federal government works hard to lower the barriers to entry for new farmers. If you don’t qualify for a direct FSA farm loan, you could try a joint financing loan that partners with a commercial lender. Otherwise, online lenders may be able to fill in the gaps of financing with products like lines of credit or equipment financing — and you can find these and other loans for small business in Nav’s marketplace. Just be sure to understand all the fees and terms of any loan before you sign on the dotted line.

This article was originally written on May 9, 2022.

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