Commercial Line of Credit for Agricultural Businesses
Agricultural businesses face extreme seasonal cash flow imbalances: production costs (seeds, inputs, labor) are concentrated in spring and summer, while revenue arrives at harvest or is spread across the year through commodity contracts. Commercial lines of credit — including USDA-backed farm operating lines — bridge this gap.
Common Uses of a LOC in Agriculture
- Purchasing seeds, fertilizer, and crop inputs at planting time before harvest revenue arrives
- Funding seasonal labor costs during planting and harvest seasons
- Covering operating costs during weather-related crop delays
- Purchasing livestock feed during periods when pasture is insufficient
- Bridging cash flow between harvest and commodity price settlements
Cash Flow Patterns
Agricultural cash flow is highly seasonal and tied to crop cycles, commodity prices, and weather. A corn or soybean farmer may spend 70–80% of annual operating costs in March–June and receive the majority of revenue in October–December. This makes an annual revolving line of credit — drawn each spring and repaid at harvest — the standard working capital tool for row crop farmers and many other agricultural operations.
What Lenders Evaluate
Agricultural lenders — including Farm Credit System lenders, USDA FSA programs, and commercial banks with ag departments — evaluate land equity, crop history, commodity contracts (forward sales), and the operator's experience. The USDA's Farm Service Agency (FSA) offers operating loans and loan guarantees for farmers who cannot access conventional credit. Personal credit and a current financial statement are typically required.
Frequently Asked Questions
- What is a farm operating line and how is it different from a commercial LOC?
- A farm operating line is a revolving credit facility specifically designed for agricultural production — it works the same way as a commercial LOC (draw, repay, reuse) but is underwritten using agricultural income statements and may be backed by USDA guarantees. Farm Credit System lenders specialize in these products.
- Does the USDA offer agricultural lines of credit?
- The USDA's Farm Service Agency (FSA) offers Operating Loans (up to $400,000) and Emergency Loans for farmers. These are direct government loans or loan guarantees for farmers who cannot access conventional financing. Interest rates are set by the USDA and are typically below commercial market rates.
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