3 Things A Lender Will Consider When You Apply For A Farm Or Ranch Loan

Posted on: 16 December 2019

Farm and ranch loans are a bit different than your typical commercial loan, and they are even more different from a basic residential property loan. If you are intending to buy a property that will be used for farming or ranching purposes, it is helpful if you understand what the lender will be looking at when you apply for a loan. 

They will look at if the land has the potential to be good for agricultural purposes. 

Not every patch of land can be transformed into a farm or a ranch. Livestock and crops need certain things and attributes to thrive. Before a lender who specializes in agricultural loans actually extends you a loan offer, they may want to get a good look at the land that you are considering buying. The purpose behind this is that the lender is securing their investment in you and the property. If the property seems like it would not nurture an operation, there is a bigger chance that you would default on the land loan in the future because you are not generating enough revenue. 

They will possibly look at the historical use of the land and property. 

It may seem like the history of a piece of property is not all that important if you plan to use it for a farm or a ranch, but this can actually be an important aspect for the lender to consider. For example, if the property has a history of industrial use, there is a possibility that contamination would prevent any farming or ranching endeavors on that land. The lender may do a thorough investigation of what the property was used for in the past, whether it was ever used for farming and what challenges that farm faced, and more. 

They will look at your assets and your ability to invest money into the land. 

Building a successful farm takes two important things: money to invest in your efforts and the proper assets or equipment. If you do not have either of these things, it can make it more difficult to obtain a farm or ranch loan because you will be starting out with only the property and nothing more to nurture your business plan. On the other hand, if you have the financial resources to invest in the property, buy equipment, create cropland, and more, you may be more likely to get the loan.