How to Use Your Land as Collateral for a Farm Loan
For farmers and ranchers, farmland is more than just dirt and fields, it’s their biggest asset. It’s where you grow crops, raise livestock, and build your livelihood. But did you know it can also help you secure financing? Need to grow your farm, upgrade equipment, or cover seasonal costs? A land-backed loan could be the right move.
But before you jump in, it’s important to understand how it all works. What do lenders look for? How much can you borrow? What risks should you consider? Let’s break it all down so you can make an informed decision for your farm’s future.
What Does It Mean to Use Land as Collateral?
Using land as collateral means offering your property as security for a loan. In simple terms, the lender places a legal claim (called a lien) on your land, which means they have the right to take ownership of it if you’re unable to repay the loan. As long as you make your payments on time, your farmland remains yours, and once the loan is paid off, the lien is removed.
Secured loans, like those backed by your land, can mean lower interest rates and higher borrowing limits compared to unsecured loans. Since your land backs the loan, lenders feel more secure, which often means better terms, like lower interest rates and higher borrowing limits. This makes using land as collateral a practical financing option for farmers who need access to capital.
“Land equity’s one of those things that gives you both security and options. Whether it’s for expanding the operation or smoothing out cash flow during a tough stretch, it puts you in a much stronger position than someone who doesn’t have that cushion. And more often than not, land collateral helps you qualify for better loan terms too.” begins Matt Manuel, Conterra VP Relationship Manager
Of course, borrowing against your land isn’t something to take lightly. Understanding the benefits and risks can help you make a well-informed decision before taking on debt.
Why Use Land as Collateral?
Why use your land as collateral for a loan? Simple, it gives you access to larger loan amounts than an unsecured loan ever could and will typically provide better terms and rates than any other security. Lenders know that farmland holds value, so they’re more willing to extend credit when your land is backing the deal. That makes land-backed loans an option for big investments, whether you’re buying more acreage, upgrading equipment, or restructuring debt.
Another big plus? Lower interest rates. Since the loan is secured, lenders take on less risk, which means they may offer you better terms compared to unsecured loans or credit lines. This may save you thousands of dollars in interest over time.
Additionally, these loans often come with longer repayment terms, sometimes as long as 30 years. This makes payments more manageable and helps keep your farm’s cash flow stable.
That all sounds great—but how much can you actually borrow? Let’s take a look at what lenders consider when deciding your loan amount.
How Do Lenders Determine Loan Eligibility?
Every lender has their own way of evaluating land-backed loans. They look at a few key factors to decide how much you can borrow and what terms you’ll get.
Manuel went on to say, “It’s easy to think that land value is the main driver in a loan, but honestly, we look at more than that. We’re also asking: how strong is the full financial picture? What kind of income does that land actually produce? That all plays into the loan terms we can offer.”
The first thing they’ll look at is your land’s market value. A professional appraisal sets your land’s value, which lenders use to decide your loan amount. Typically, lenders will finance between up to 70% of the land’s appraised value: this is called the Loan-to-Value (LTV) ratio. The more valuable your farmland, the more borrowing power you’ll have.
Next, lenders will evaluate your financial health. This includes your credit score, income from farming operations, and existing debt obligations. A higher credit score (usually 650 or above) and a strong farm income may improve your chances of securing a better loan. Lenders also want to see that you have enough cash flow to comfortably make your payments.
Finally, the condition and use of your land matter. Productive farmland with good soil, irrigation access, and strong market demand is more favorable for lending than undeveloped or low-value land. If your land has zoning restrictions or conservation easements, this could impact your eligibility or loan terms.
Now that you know what lenders are looking for, let’s talk about how to go through the process of securing a land-backed loan.
Steps to Secure a Farm Loan Using Land as Collateral
→ Before diving into the application, check out our Top 8 Tips for Securing a Farm Loan.
1. Figure Out How Much You Need to Borrow: Before applying for a loan, it’s important to determine exactly how much financing you need and what you’ll use it for. Are you buying more land? Upgrading your irrigation system? Refinancing existing debt? Having a clear plan for the funds will make your application stronger and help you avoid borrowing more than necessary.
2. Compare Lenders and Loan Options: Not all lenders offer the same terms, so it’s worth shopping around. Lenders all have different loan structures, and finding the right fit for your farm is crucial. Some lenders specialize in long-term farm loans, while others focus on short-term financing for equipment or operational costs. Some alternative lending options may also offer competitive terms, especially if you’re seeking a flexible repayment schedule. Compare interest rates, repayment terms, and fees before making a decision.
3. Gather Your Financial Documents: To process your loan application, lenders will ask for financial documents such as:
- Farm income statements and tax returns (last 2-3 years)
- Land ownership records (deed, title, zoning reports)
- Details on existing debts or loans
- A business plan (if using the loan for expansion or new investments)
Being prepared with these documents can speed up the approval process and show lenders you’re a reliable borrower.
4. Submit Your Loan Application and Review the Terms: Once your application is submitted, the lender will review your financials, credit history, and property information before making a decision. If approved, they’ll offer options on loan terms outlining the loan amount, interest rate, repayment schedule, and any conditions. Always review these terms carefully and compare multiple offers before signing.
Note: Because your loan amount is tied to your land’s value, in most cases a professional appraisal is required. The appraiser looks at things like soil quality, location, water availability, and recent land sales to determine its worth.
After securing financing, the next step is making sure you manage your loan responsibly.
How to Manage Risk When Using Land as Collateral
While land-backed loans have many advantages, they also come with risks, most importantly, the potential loss of land if you’re unable to make payments. That’s why it’s crucial to borrow wisely and have a solid repayment strategy in place.
“I tell my borrowers let’s make this a team process. We’ll look at what you need, how you operate, and then consider loan size and payment structure to line up with your cash flow and goals. What works for one farm might not work for another, and that’s why the details matter.”
Matt Manuel, Conterra VP Relationship Manager
To reduce risk, only borrow what you truly need and ensure that loan payments fit within your farm’s budget. If possible, structure your loan payments around your harvest cycle so you’re making payments when farm revenue is at its highest. Having an emergency savings fund to cover at least three to six months’ worth of loan payments can also help protect you in case of unexpected downturns.
“Consistency matters. A lender who knows your operation and maintains clear communication can help you adjust faster when the market shifts,” advised Manuel. “A good lender doesn’t just write the loan, they stay in step with your needs, helping you pivot, refinance, or restructure to fit new realities.” Another way to manage risk? Keep an eye on farmland values. If land values drop, refinancing could get tougher. Keeping an eye on land prices and interest rates can help you make better financial moves down the road
Is a Land-Secured Loan Right for You?
Using farmland as collateral may be a powerful way to access the financing you need to grow and improve your operation. With lower interest rates, flexible repayment terms, and the ability to borrow larger amounts, it’s a great option for many farmers. However, it’s important to understand the risks and responsibilities that come with it.
“A land-secured ag loan may help you move your operation forward without overextending your finances. Take the time to compare options and work with someone who truly understands agriculture and the importance of you having a trusted lender in the good times and the bad,” concluded Manuel.
If you’re considering using your farmland for a loan, take the time to compare lenders, understand the terms, and ensure your repayment plan fits your farm’s cash flow. When used wisely, a land-backed loan can help you invest in your farm’s future without stretching your cash flow too thin.
Thinking about using your land to secure a loan? Let’s talk. Using real estate as collateral may help you expand, invest, or cover costs without hurting your cash flow. Reach out to a lender like Conterra, who understands agriculture and can help you find the best option for your operation.
Conterra Ag Capital is a private lender, focused exclusively on American agriculture. We offer a variety of specialized ag loans tailored to meet the specific needs of farmers and ranchers nationwide. With a team of experienced relationship managers, including Matt Manuel, strategically located across the country, we provide regional expertise and personalized service to our clients. Whether you’re a seasoned producer or new to the industry, Conterra is committed to supporting your agricultural endeavors. Our people, products, and process-driven approach to lending makes us unique.
Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.
