Agricultural credit is the financing extended to farms, ranches, agribusinesses, and rural cooperatives to fund operations, land acquisition, equipment purchase, and seasonal working capital needs. It is one of the oldest forms of commercial lending and remains a critical segment of community and regional banking, particularly in the U.S. Midwest, Plains states, and California Central Valley.
The defining characteristic of agricultural lending is seasonality. Crop farmers have production cycles that generate significant expenses (seed, fertilizer, chemicals, fuel, labor) months before revenue arrives at harvest. Agricultural operating lines of credit — short-term revolving facilities repaid at harvest — are designed to bridge this seasonal cash flow gap. Repayment depends on commodity prices, yields, and the borrower's marketing strategy.
Farm loans fall into several categories. Operating lines of credit fund annual crop or livestock production costs and are typically drawn each spring and repaid at harvest or after the livestock cycle concludes. Real estate loans finance land acquisitions and improvements, with amortization periods of 20–30 years. Equipment loans and leases finance tractors, combines, irrigation systems, and other capital equipment.
Agricultural lenders use specialized underwriting metrics including farm financial ratios (working capital ratio, equity ratio, debt coverage ratio) defined by the Farm Financial Standards Council. Cash flow analysis focuses on accrual-adjusted income rather than tax-based income, given the significant depreciation and timing differences in farm accounting.
Government programs play an important role in agricultural credit. The Farm Service Agency (FSA) offers direct and guaranteed loan programs for farmers who cannot obtain commercial credit. Crop insurance — often a lender requirement — protects both borrower revenue and lender repayment in the event of yield loss due to weather or disease. The Farm Credit System, a government-sponsored enterprise, provides additional competition in the agricultural lending market.