Loan for Agriculture: Types, Meaning and Eligibility

Almost 60% of India’s population relies on agriculture as their main source of income. This means that there is a huge section of people who are predominantly farmers. Now, farmers need to invest a lot of money into their fields to get the results they want – seeds, fertilisers, tractors, irrigation systems, etc. How do they get through all these? With the help of ag loans or agricultural loans or krishi loans.

Agricultural loans are quite popular with Indian farmers, and the Indian government also provides plenty of financial schemes to help them. Moreover, many banks provide agriculture loan to farmers at attractive rates, helping them feed the nation. 

If you are looking for farm land loans, here is everything you need to know about agriculture loan.

What are the types of agricultural loans available in India?

The types of agriculture loan in India can be divided into two parts – based on tenure and end-use.

Agricultural loans based on tenure

There are two kinds of agri loans or agricultural loans available for farmers based on tenure:

Agriculture term loan: 

• For the long term

• To cover non-seasonal expenses for farmers

• Funds can be used for buying/upgrading machinery or land

• Repayment tenure is flexible

Kisan Credit Card (KCC) or Crop loans:

• Short-term loans to help farmers meet their seasonal expenses

• Funds can be used to buy seeds, crops, etc.

• A minimal amount of money is provided in these loans

Read more: What is an unsecured personal loan?

Agricultural loans based on end-use

There are three kinds of agri loans or agricultural loans available for farmers based on end-use:

• Solar pump set loan – To purchase a photovoltaic pumping system in order to boost irrigation facilities

• Farm mechanisation loan – To buy, repair or upgrade farm machinery

• Allied agricultural activities loan – To cover current financial needs and long-term needs for associated agricultural activities

There are a few types of agri loans or agricultural loans as well, which are not as common, but can still be used:

Agricultural Gold Loans

Here, farmers can provide some gold as collateral in order to obtain their agricultural gold loans at lower agri gold loan interest rate. It is usually offered to cover farming expenses. In addition, the agriculture loan interest rate or agri loan interest rate is quite low and allows farmers to use their gold to get funds, which would otherwise just sit at their homes or in their lockers.

Horticultural Loans

This form of farm land loans is provided to farmers who are looking to grow vegetables. These farm loans cover the finances needed for cutting wild trees, setting up fences to protect farm produce from animals, etc.

Forestry loan

There are many farmers who produce food items that grow on trees. For them, forestry agriculture land loans are a way to get quick financing, which can be repaid later. The finances can be used to farm the trees in a proper manner, setting up boundaries or fences, sourcing the right set of equipment and more.

Read more: How to get personal loans for the self-employed in India?

What are the eligibility requirements for agricultural loans?

Here are the eligibility criteria that you must meet to get an agriculture loan from a bank or financial institution:

• The applicant must be between 18 to 65 years of age

• Loan applicant must be an Indian citizen

• There must be no criminal record of the applicant

• The candidate must not have defaulted on any loans in the past

NOTE: Each lender in India may have different eligibility criteria for offering agricultural or farm loans. However, the eligibility conditions given above are commonly found across all banks. 

What are the interest rates on agricultural loans?

Farmers are the food producers of our country. Without their blood, sweat and hard work, we would not have sustenance. As a result, it is only right that loan against agricultural land offer interest rates that are quite low, compared to other forms of loans. For most banks, the agriculture loan interest rate start from 7%. To get the best deal on your agricultural loan, compare the offers and farm loan interest rates from various banks.

What are the benefits of agricultural loans?

Here are some of the benefits of ag loans or agricultural loans:

• The ag loan interest rates is very low 

• There is minimal paperwork involved

• Processing is fast

• Repaying the loan is flexible

• Some lenders also offer unsecured agricultural loans, depending on the applicant

• The agriculture land loans amount sanctioned can be used for various agricultural activities

Read more: What is the minimum salary required to get a personal loan?

How to apply for agricultural loans?

Farmers can submit an application for loan to buy agricultural land online or offline. To apply online, log in to the bank’s website, fill out the application form, provide all the necessary details and click on apply. For the offline method, visit the nearest bank branch and make sure to carry all the necessary documents with you, so that the loan application gets processed faster.

You will only get your ag land loan once the verification process is complete, whether you apply online agriculture loan or offline. Meanwhile, for those who are looking to get a loan without providing any collateral, try out Airtel’s personal loan offering. Apply today on the Airtel Thanks app.

FAQ’s on Agricultural Loan

1. What is an agriculture loan, and how is it different from other types of loans?
   Loan against agricultural land are provided to farmers to help them in financing their seeds, machinery, purchasing land, and for other uses. Agricultural loans, including शेती कर्जाचे प्रकार, have a very low rate of interest and offer flexible repayment tenures compared to other loans.

2. What are the typical purposes for which farmers and agricultural businesses seek loans?
   Farming requires a lot of investment right at the beginning – plenty of land, seeds, fertilisers, irrigation equipment, the right set of tools and machinery, and more. Farmers and agricultural businesses often need agricultural farm loans for these purposes.

3. What types of agricultural loans are available, and how do they differ in terms of repayment terms and interest rates?
   There are many types of agricultural loans available to users, such as short-term and long-term agricultural farm loans, personal loan for farmers, agriculture gold loans, mechanisation loans, and more. Repayment of these loans can be done with monthly instalments or all at once. The interest rates for agricultural loans is quite low, starting at 7%.

4. What are the eligibility criteria for obtaining an agriculture loan?
   Here are the eligibility criteria for getting an agriculture loan or krishi loan: The applicant must be between 18-65 years old, have no criminal record, be an Indian citizen, and have a good credit repayment history.

5. How is the loan amount determined, and what factors influence the approval of an agriculture loan application?
   The loan amount is determined after an internal verification by the lender. A good credit history and the ability to repay the loan amount, whether it’s a personal loan for farmers or an agricultural farm loan, will positively influence the approval process.

6. Can you explain the different government schemes and subsidies available for agricultural loans?
   There are multiple government schemes and subsidies that support agricultural loans. Some of them include the Kisan Credit Card (KCC), Swarnim Yojana (gold loan), financing to joint liability groups, and funding to NHGs under the national rural livelihood mission.

7. What collateral or security is typically required for an agriculture loan?
   Banks usually do not demand any collateral or security if the loan amount is up to ₹1.6 lakhs. However, for agricultural farm loans exceeding this amount, banks could ask farmers to provide land as security.

8. How are interest rates for agriculture loans calculated, and are there any provisions for interest rate subsidies?
   Interest rates for agriculture loans typically start from 7%. However, the rate can vary from one lender to another. Loan applicants, whether for farmer personal loan or agricultural farm loans, can negotiate with banks to reduce the interest rate.

9. What is the loan repayment schedule, and are there flexible repayment options based on the agricultural season?
   The loan repayment schedule for agricultural loans is very flexible. Farmers can opt to repay the entire amount at once or in instalments. The repayment option can also be structured around the harvesting season.

10. In case of crop failure or unforeseen circumstances, what provisions are in place for loan repayment flexibility or restructuring?
    If crop loss is between 33% and 50%, banks may extend the repayment period by up to 2 years. For losses exceeding 50%, the RBI has directed banks to increase the repayment period by up to 5 years for agricultural farm loans.

11. Can agricultural loans be used for both input costs (seeds, fertilizers, etc.) and capital expenditures (equipment, land purchase, etc.)?
    Yes, agricultural loans, including agricultural farm loans, can be used for both input costs and capital expenditures, such as purchasing equipment and land.

12. What role do credit scores and financial history play in the approval process for agriculture loans?
    A good credit score and solid financial history play a critical role in approving agricultural loans. They indicate creditworthiness and assure the bank that the applicant can handle credit responsibly.

13. Are there specific loan products for organic farming or sustainable agricultural practices?
    Yes, NABARD provides specific agricultural loans and subsidies for organic farming and sustainable agricultural practices.

14. How long does it typically take to process an agriculture loan application?
    Once internal review processes are complete, banks or lenders typically process agricultural loan applications quite quickly.

15. What documentation is required when applying for an agriculture loan?
    The required documents include two passport-sized photos, a filled application form, a Kisan Credit Card (KCC), ID proof, address proof, and proof of income.

16. Are there penalties for early repayment, and what are the consequences of defaulting on an agriculture loan?
    There are no penalties for early repayment of agricultural loans. However, defaulting on an agricultural loan will negatively impact your credit score and may result in losing any collateral provided as security.

17. Do agricultural loans cover both small-scale and large-scale farming operations?
    Yes, agricultural loans, including agricultural farm loans, cover both small-scale and large-scale farming operations.

18. What are the challenges or risks associated with agriculture loans, and how can they be mitigated?
    The biggest challenges with agricultural loans include unpredictable weather and market price fluctuations, which can impact harvests. These risks can be mitigated by crop insurance and diversification of crops.

19. Are there any special considerations or benefits for young farmers or first-time borrowers in agriculture?
    Yes, the government offers various benefits for young farmers and first-time borrowers, including lower interest rates on personal loans for farmers, subsidies, and skill development training.

20. How can farmers stay informed about changes in policies or new financial products related to agriculture loans?
    Here are some ways to stay updated – visit Government websites and portals regularly, engage regularly with local agricultural co-operatives, join farmer’s associations and groups, check for SMS texts by the Government, agricultural loan melas and many more.