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Show Me the Money: A Primer on Agricultural Lending

Summary

The availability of credit is an integral part of the agricultural production process. Borrowing large amounts of capital and incurring considerable debts in order to operate and maintain a farming operation has become a custom practice of the industry. Even though obtaining a loan is common among farmers, the borrowing process can be unclear at times. In an effort to bring clarity to the lending system, agricultural lending firms and banks have attempted to standardize the lending structure. These institutions began classifying loans according to the purpose for which the loan had been obtained and the source of collateral being secured by the loan. Accordingly, there are two types of agricultural loans, “production loans” and “capital loans.”