Finance Tools for Your Farm: Lines of Credit

Whether you’re a beginning farmer or an experienced operator, you’re probably no stranger to the unsteady cash flow that’s typical of agriculture’s annual production cycle. 

For example, grain farmers need significant amounts of money for seed and other inputs at the beginning of the year, reaping the rewards only at harvest time. Cattle finishing operations need to purchase calves and pay to feed them before earning income when they are sold. 

So, how do producers keep their purchasing power strong throughout the entire year? With an effective agriculture financing tool called a line of credit. 

“I always describe a line of credit as like a credit card,” says Phil Young, AgCredit account officer.

By having a line of credit, you can take advantage of opportunities when you see fit, such as purchasing inputs for the next crop season when prices are lower or having the flexibility to purchase feed when you need it. 

Unlike a loan payment that’s paid back over time, revolving lines of credit allow you to pull money out, make payments and then pull money out again. It works similar to a credit card but gives you the flexibility of higher credit limits and the ease of transferring funds. 

These are a great cash flow tool for both starting farmers and well-established producers. For a first-time borrower, a line of credit will typically be structured as a 12-month, variable rate, revolving line. 

“That gets you acclimated to what an operating line is and helps us get to know your operation and how it functions,” says Phil.

However, there are also non-revolving lines of credit that are appropriate for certain situations. With a non-revolving line of credit, once you pull money out and pay it back, it’s not available any more. You would go through a loan renewal process to get another non-revolving line of credit. 

“When we look at revolving versus non-revolving, revolving fits well for a grain operation,” says Matt Adams, AgCredit lending manager. “When we look at non-revolving, I look at that more on our livestock feedlot producers.”

Revolving works well with a grain operation because of the way the inputs are structured. You may be purchasing inputs at different times throughout the year, so having the revolving line of credit available is a huge benefit. Non-revolving lines of credit work great when you’re working within the constraint of a budget. It also works well for things like purchasing cattle in batches. 

Lines of credit also require renewal. Meeting with your loan officer to determine cost and income projections helps you find the right loan structure for your operations and secure what you need to be successful.  

“We want to make sure (the line of credit) fits within your repayment capacity for the crop or the animal that’s going to be produced to repay the loan,” explains Matt. 

If you’d like to talk to an AgCredit account officer to see if an operating line of credit is right for your operation, contact your local AgCredit office.