Agricultural loans and grace periods: a guide for farmers

Farm income is usually tied to the season: seed, fertiliser and feed are bought in spring and summer, while money from the harvest arrives months later. A standard repayment schedule doesn’t always fit that reality. The agricultural loan and its grace period are designed to bridge the gap.

What an agricultural loan is

It is a loan for farmers and agricultural producers. The money can go towards planting, livestock, poultry, greenhouses, machinery and equipment, feed and other working costs.

Key terms of the Finex Kredit agricultural loan:

• amount: AZN 1,000 to AZN 50,000;
• term: 12–36 months;
• annual rate: 28–36%;
• commission: 1–3%;
• repayment: annuity;
• a grace period may be granted — only interest is paid during it.

According to previously published terms, the effective annual rate (FİFD) on the agricultural loan was 30–38%.

What a grace period is

A grace period is the first part of the loan during which you don’t repay principal — only the accrued interest. When it ends, the principal is spread over the remaining months and normal annuity payments begin.

The benefit for a farmer is clear: while the crop is still growing and unsold, the burden is minimal, and the main payments start once income arrives.

A worked example

Say you borrow AZN 20,000 for 24 months at 28% a year.

Without a grace period the monthly annuity payment is AZN 1,097.77 and total interest is AZN 6,346.48.

Now suppose the first 6 months are a grace period:

1. 1For 6 months you pay interest only: 20,000 × 28% / 12 ≈ AZN 466.67.
2. 2Over the remaining 18 months the principal is repaid as an annuity: about AZN 1,373.46 a month.
3. 3Total interest comes to about AZN 7,522.23.

The grace period more than halves the burden in the first months, but payments rise afterwards and total interest is a little higher, because the principal doesn’t fall during the grace period and interest is charged on the full amount. This is a simplified example; whether a grace period is granted, and for how long, is decided when your application is reviewed.

When a grace period makes sense

• when income from the harvest is expected several months later;
• when you’re setting up a new orchard, greenhouse or farm and the first revenue will come later;
• when you’re buying livestock that hasn’t yet reached its productive period.

If your income is fairly even through the year, a standard annuity without a grace period costs less.

Preparing to apply

1. 1Describe your farm and the purpose of the loan: what you’ll buy and when income is expected.
2. 2Draft a rough calendar of seasonal income and costs.
3. 3Keep land, lease or farm documents to hand.
4. 4Try different amounts and terms in the calculator.
5. 5Apply online — a specialist will contact you within 24 hours.

Working with state programmes

Since 2014 Finex Kredit has worked with the state agency that finances the agricultural sector, and since 2015 with the Entrepreneurship Development Fund. Through this cooperation, farmers and entrepreneurs in the regions have received concessional loans. Ask a specialist about current programmes and their terms.

Useful tips

• Match your repayment schedule to your harvest sales calendar.
• Have a fallback plan for weather and market risks.
• Borrow only what you need.
• Compare loans by their effective annual rate.

Building a seasonal schedule

A farm’s cash flow usually looks like this: costs in spring and early summer, income in autumn. When planning a loan, draw up a simple twelve-month table of expected income and costs. The months with the most income will carry your repayments. It also makes sense to base the length of the grace period on this table — it should run until the month the first large income is expected.

Managing risk

Weather, disease and market prices can all change farm income. To reduce the risks:

• diversify your crops or activities;
• look into insurance where available;
• keep a reserve for the first months.

Frequently asked questions

Is a grace period available on every agricultural loan? A grace period may be granted — it’s decided once your application is reviewed.

Do I pay nothing during the grace period? You don’t repay principal, but accrued interest is still paid.

See the agricultural loan terms in the “Loans” section and calculate your payment in the calculator.