A loan used to buy seed and fertilizer is generally called what?

• A. Operating loan
• B. Term loan
• C. Mortgage
• D. Credit card

Answer: (A)

When financing daily farm operating costs, you use an operating loan. This type of loan is intended to cover short-term, day-to-day expenses needed to run the farm, such as seed, fertilizer, fuel, and other inputs for the current production cycle. It’s typically a short-term, revolving arrangement that is repaid from the cash flow generated by the crop or livestock sale, often within a single season or year.

This differs from a term loan, which is used to buy long-lasting, durable assets (like equipment or facilities) and paid back over several years; a mortgage, which is specifically for real estate; and a credit card, which is generally not the standard way farms structure their production inputs financing.