A short-term loan or line that pays a farm's yearly costs, such as seed, feed, fertilizer and rent, and is repaid when the crop or livestock is sold.
An operating loan follows the production cycle. Money goes out at planting or when animals are bought, and comes back at harvest or sale. The OCC handbook on agricultural lending says crop production loans are self-liquidating, with repayment shortly after the crop is sold, and that for short cycles such as grains or feeder cattle the loan may be set up to be repaid and renewed each year.
The federal rule for operating loans that carry a Farm Service Agency guarantee gives a good list of what the money is for: feed, seed, fertilizer, pesticides, farm supplies, repairs, cash rent and family living costs, along with livestock and equipment.
The word a lender listens for is carryover. The handbook defines carryover debt as the part of an operating line the borrower cannot repay from that year’s production revenue. It says significant carryover raises repayment risk and may call for moving that balance into an amortizing medium-term loan while the current year is financed separately. If you have carryover, say so and show how it gets paid; a lender will find it in the numbers anyway.
How it shows up in the data here
This site does not carry farm production loans, which are not secured by real estate. The farm figure shown here is loans secured by farmland, a different line. A lender with a large farmland book usually makes operating loans too, so farm lenders and farmland books are a fair starting list, but confirm with the lender. Farm Credit associations, which make many operating loans, are not in bank or credit union files.
Go further
- Farm lenders by state: Banks and credit unions holding farmland loans.
- Search lenders: Filter by state and lender type.
- Farm loan package checklist: A farm lender reads a balance sheet, a production record and a cash flow budget. The land is the collateral. The crop or the herd is the repayment, and it comes in once or twice a year.
- Business line of credit package checklist: A line of credit pays for the gap between spending money and collecting it. The lender wants to see that the gap is real, that it closes, and what it can take as collateral while it is open.
Related terms
- Farmland loan: A loan secured by farm or ranch land and its improvements, usually made to buy or refinance the land and repaid over many years from farm income.
- FSA guaranteed loan: A farm loan made and serviced by a bank, credit union or Farm Credit lender, on which the USDA Farm Service Agency covers most of the lender's loss if the borrower defaults.
- Farm Credit association: A borrower-owned cooperative lender in the Farm Credit System that makes loans to farmers, ranchers and other eligible rural borrowers.
- Line of credit: A commitment from a lender to advance money up to a set limit, which a business can draw, repay and draw again as its cash needs rise and fall.
- Working capital: The money a business has tied up in day-to-day operations, measured as current assets minus current liabilities; a working capital loan funds that gap.
- Borrowing base: The most a lender will advance on a line of credit at a given time, set as a percentage of the eligible receivables, inventory or other collateral pledged.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.