- Amortization
- Paying a loan off through regular payments that cover interest first and then principal, so the balance falls to zero by the end of the term.
- Balance sheet
- A snapshot of what you own (assets) and what you owe (liabilities) on one date. The difference is your net worth.
- Beginning farmer
- A term many programs use for a newer operator. Each program defines it differently, so read the official definition.
- Break-even
- The sales volume or price at which income exactly covers costs.
- Capital
- Money or assets invested in the operation. Lenders look at how much of your own capital is at stake.
- Cash flow
- The timing of money coming in and going out. A farm can be profitable on paper and still short of cash at the wrong time.
- Collateral
- Property pledged to back a loan, such as land, equipment or livestock.
- A program that reimburses part of the cost of an approved practice. You usually pay first and are paid back, within the program rules.
- Debt coverage ratio
- Income available for debt payments divided by the payments due. Lenders define it in different ways.
- Depreciation
- Spreading the cost of a long-lived asset over its useful life for accounting or tax purposes. Tax rules differ from book rules.
- Direct loan
- A loan made by a government agency itself, rather than by a bank.
- Eligibility
- The rules that decide whether you can apply for or receive a program or loan.
- Enterprise budget
- An estimate of the income and costs for one crop or livestock enterprise, used to compare options.
- Equity
- The part of an asset you own outright: value minus what is owed on it.
- Farm bill
- Major federal legislation, renewed periodically, that sets the framework for many farm programs. Details change with each version.
- FSA
- The USDA Farm Service Agency, which runs farm loans and many farm programs through local service centers.
- Guaranteed loan
- A loan made by a commercial lender where a government agency promises to cover part of the lender's loss if you default.
- Income statement
- A summary of income and expenses over a period of time, also called a profit and loss statement.
- Interest rate
- The price of borrowing, usually shown as a yearly percentage. Compare it alongside fees and the loan term.
- Lien
- A legal claim on property to secure a debt.
- Line of credit
- A borrowing limit you can draw on and repay as needed, often used for operating costs.
- Microloan
- A smaller loan with a simplified application. Programs define the size limits themselves.
- NRCS
- The USDA Natural Resources Conservation Service, which offers conservation technical help and funding programs.
- Net worth
- Assets minus liabilities.
- Operating loan
- Borrowing for the costs of running the operation for a season, such as seed, feed and fuel.
- Principal
- The amount borrowed, not counting interest.
- RMA
- The USDA Risk Management Agency, which oversees the federal crop insurance program.
- Schedule F
- The IRS form used by many sole proprietors to report farm income and expenses.
- Succession plan
- A written plan for how management and ownership of a farm will pass to the next people, and when.
- Working capital
- Current assets minus current liabilities. A measure of short-term cushion.
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Plain-English guideFarm finance glossary
Plain-English definitions of the words you will see on loan and program pages.