What Ag Lenders Look For at Farm Loan Renewal
Your loan officer forms an opinion from four numbers before the meeting starts. Here's what each one measures, what it has to clear, and how to know yours ahead of time.
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The four numbers
Debt service coverage (DSCR)
Can the operation make its payments?
(Net farm income + depreciation + term-debt interest + non-farm income − family living − income taxes) ÷ (term-debt principal + interest)
- Below 1.00xCash flow does not cover payments. Expect added collateral, a co-signer, or a decline.
- 1.00 – 1.24xThin. Payments are covered with no room for a bad year; conditions are likely.
- 1.25xThe common minimum. Clears committee on this measure.
- 1.50x and upComfortable margin of safety — leverage for rate and terms.
Liquidity — current ratio & working capital
Can you fund the coming crop year without new borrowing?
Current assets ÷ current liabilities; working capital = current assets − current liabilities
- Below 1.0:1Current obligations exceed current assets. A restructure conversation.
- 1.0 – 1.5:1Tight. Lenders watch grain inventory and prepaid inputs closely.
- 1.5:1 and upAcceptable to strong; 2:1 is comfortable.
- Working capitalMany lenders want 20%+ of gross farm revenue going into the year.
Solvency — debt-to-asset ratio
How much of the operation does the bank own?
Total farm liabilities ÷ total farm assets
- Under 30%Strong equity position.
- 30 – 60%Workable, and typical for a growing operation.
- Above 60%Raises solvency concern, especially if land values carry the balance sheet.
Profitability — operating profit margin
Does the operation generate a return, not just cash?
(Net farm income + interest − unpaid operator labor) ÷ gross farm revenue
- Under 10%Weak. Coverage that depends on off-farm income gets flagged here.
- 10 – 25%Reasonable for a row-crop operation in a normal year.
- Above 25%Strong, and it usually shows up in every other ratio too.
Conventions vary. Some lenders exclude off-farm income, some run a three-year average, some weight grain inventory differently. Treat these as the ballpark and confirm what your bank uses.
Coverage is the one they run first
Every other ratio describes cushion. Coverage answers the actual question — will the operation generate enough cash to make the payments. That's why the 1.25x line does most of the work in a renewal decision, and why it's worth knowing your rough number in January rather than at the desk.
Check your coverage ratio free — three inputs, about two minutes, nothing saved. Then read how lenders think about repayment capacity, liquidity, and solvency.
The ratios come off statements that tie together
A lender doesn't take your ratios on faith — they recompute them from your statements. If the Schedule F, the depreciation schedule, the balance sheet, and the cash flow were each built separately, they usually disagree, and the file stalls while someone rebuilds them. TG360 generates the whole stack from one dataset, with a lender ratio summary on the front.
See the lender package or get the renewal document checklist.
Frequently asked questions
- What ratios do ag lenders look at?
- Four, in roughly this order: debt service coverage (DSCR), the current ratio and working capital, the debt-to-asset ratio, and an operating profit margin or return on assets. Coverage answers whether you can make the payments; the others describe how much cushion and equity sit behind that answer.
- What DSCR do most ag lenders require?
- 1.25x is the common minimum many ag loan committees want to see. Below 1.00x, cash flow does not cover payments at all. At 1.50x and above, lenders see a real margin of safety and you have more room to negotiate rate and terms.
- What is a good current ratio for a farm?
- Lenders generally look for a current ratio at or above 1.5:1, with 2:1 considered strong. Working capital as a percentage of gross farm revenue matters just as much — many lenders want to see 20% or better going into an operating year.
- What debt-to-asset ratio is acceptable?
- Under 30% is typically viewed as strong, 30–60% is workable, and above 60% raises concern about solvency. Because land values drive this ratio, lenders also watch how much of your equity is tied up in appreciated land versus working assets.
- How can I find out my ratios before the renewal meeting?
- You can estimate your coverage ratio in about two minutes with the free TG360 DSCR check — no signup and nothing saved. The full set comes off accrual-adjusted statements that tie together, which is what TG360 builds from your Schedule F and paperwork.
Are you the lender?
If you're an ag loan officer, the free DSCR check is yours to forward to your borrowers — with copy-and-send email text, a QR code, and a printable handout.