Ag lending

I. What is ag lending?

Ag lending, short for agricultural lending, is specialized commercial credit for farmers, ranchers, and agricultural businesses. It finances the inputs, equipment, land, and infrastructure that food and commodity production depends on.

Ag lenders evaluate production cycles, seasonal cash flow, and agricultural collateral to structure loans that fit how farms actually operate. That requires a different underwriting lens than standard commercial credit. Community banks, credit unions, and Farm Credit institutions are the primary providers of agricultural lending in the US, with the Farm Credit System being the largest dedicated source of ag credit in the country.

II. Types of ag loans

Ag lending covers a range of credit products, each tied to a specific stage or need in the production cycle:

• Operating loans: cover recurring production costs like seed, fertilizer, fuel, and labor
• Equipment loans: finance tractors, combines, irrigation systems, and other machinery
• Farm real estate loans: fund farmland purchase, improvement, and refinancing
• Livestock loans: support the purchase and care of cattle, hogs, poultry, and other animals
• Construction loans: fund new farm infrastructure like storage facilities and livestock housing

III. What makes ag lending different

Ag lending is not commercial lending with a different borrower. The risk profile, repayment structure, and collateral complexity set it apart in ways that affect every stage of the loan lifecycle.

• Seasonal cash flow: farmers borrow at planting and repay at harvest. Standard monthly repayment schedules do not fit the reality of agricultural production
• Complex collateral: land, crops, equipment, and livestock all carry value, but that value shifts with weather, commodity markets, and input costs
• External risk: a drought, a disease outbreak, or a collapse in commodity prices can affect repayment capacity regardless of how creditworthy the borrower is
• Regulatory oversight: ag lenders operate under FDIC guidelines and OCC supervisory expectations specific to agricultural credit portfolios

IV. Ag lending and loan management

Managing an ag portfolio well requires more than a general-purpose loan management system. Non-standard payment schedules, collateral that changes value seasonally, and the need for real-time portfolio visibility make infrastructure a competitive differentiator for ag lenders.