Land is often a producer's largest asset, and the equity built in it can be a powerful tool. Whether you're looking to grow, refinance debt, invest in improvements, or support a transition plan, land equity can help create financial flexibility.
This guide explains how land equity grows, how lenders evaluate it, and how to use it strategically while keeping debt aligned with your operation's cash flow.
Key takeaways
Land equity is a measure of ownership strength, representing the difference between your land’s current market value and the debt owed against it.
Not all equity is lendable equity; the amount you can borrow depends on factors such as cash flow, repayment capacity, existing debt, and lender guidelines.
Land equity grows through rising land values, debt reduction and strategic improvements that enhance a property’s productivity and marketability.
When used strategically, land equity can support liquidity, growth, refinancing, or succession goals without requiring the sale of farmland.
Protecting land equity can be just as important as using it, especially when added debt could increase risk, strain cash flow or complicate long-term family and succession plans.
What is land equity?
Equity in farmland is the difference between its current market value and the debt owed on the ground. In simple terms, it is your ownership stake in your farm ground.
Farmland is a fixed, long-term asset on the balance sheet. Over time, many producers build equity as land values rise, principal on their real estate loan is paid down, and improvements increase the productivity and marketability of the ground.
Because farmland often represents a significant share of a producer’s net worth, land equity can be an important source of financial strength. Managed wisely, it can:
Fund growth and investment. Some producers use land equity to support expansion, buy additional land, invest in infrastructure, or make improvements that strengthen an operation in the long term.
Strengthen borrowing capacity. Higher equity can improve financial ratios and may signal lower risk to lenders, depending on the borrower’s overall financial position.
Preserve working capital. Tap land equity instead of cash reserves to meet short-term needs or stay positioned for opportunities when margins are tight.
Support succession or ownership transition. Sometimes land equity is part of a producer’s plan to help the next generation buy into an operation, restructure ownership, or create liquidity for family members.
Build financial resilience. When managed carefully, land equity can provide flexibility during periods of volatility.
Land equity is more than a number on the balance sheet. It can be a financial tool that supports an operation’s long-term stability and growth. But it can also mean added or restructured debt.
How is land equity calculated?
Current market value of land – Total outstanding debt on land = Land equity
Example of land equity
What is lendable equity?
While the landowner in the example above has $1 million in equity, that does not mean the full $1 million is available to borrow. Lenders typically require the borrower to maintain an equity cushion.
Your lendable equity is the portion of equity you can borrow against. That amount is based on several factors, including:
Appraised value of the land
Existing debt
Repayment capacity
Working capital position
Loan purpose
Lender’s loan-to-value guidelines
Overall risk profile of operation
The distinction between equity and lendable equity matters. A producer may have significant equity on paper, but a lender still must determine how much can be borrowed based on repayment capacity: Equity can support a loan; cash flow repays it.
How land equity is built
Land equity isn’t built overnight. It grows through both market conditions and management decisions.
Land values. Local and regional demand for farmland, commodity prices, livestock markets, interest rates, investor activity, and availability of ground all influence land values. While land values can move up or down in the short term, farmland historically appreciates over time.
Debt reduction. One of the most direct ways to build equity is to pay down principal on the real estate loan. Some producers make additional principal payments when income is higher. Before making extra principal payments, review your loan terms and take a broader look at where available cash can have the greatest impact—whether that is reducing debt, preserving working capital, funding improvements or staying positioned for future opportunities.
Land improvements. The market often rewards productive, well-maintained land. Improvements such as drainage, irrigation, fencing, water access, soil health practices, conservation structures, and terraces may support long-term land value.
Appraisals. Because land values vary by location, productivity, land type, improvements, access, and more, determining how much your land is worth requires a professional appraisal.
Current customers can request an appraisal for operations within our service area of Minnesota, North Dakota, and Wisconsin.
How does land equity work?
As land values rise or debt is paid down, equity may increase and potentially serve as collateral for financing.
Producers may use land equity to:
Improve liquidity. Restructure operating debt or short-term obligations to ease cash flow pressure.
Support growth. Purchase land, equipment, livestock, facilities, or infrastructure.
Manage debt risk. Replace higher-interest or variable-rate debt with longer-term, fixed-rate real estate financing.
Create flexibility. Establish a multi-year line of credit.
Succession support. Help structure ownership transfer, buy-in arrangements, or liquidity needs tied to succession.
Using land equity isn’t automatically the right decision. Producers need to weigh flexibility against increased leverage and higher total interest costs. Without a good repayment plan, borrowing against your land can also put a core asset at risk.
Can I pull equity out of land?
Because land is a strong form of collateral, lenders may be willing to lend against a portion of equity in the property.
Lenders often use loan-to-value, or LTV, to evaluate real estate-secured loans.
Loan amount ÷ Appraised value = Loan-to-value ratio
Many lenders cap real estate-secured loans at a percentage of the land’s value, often within the range of 60% and 75%, depending on the loan type, borrower, and property. This ensures that the borrower maintains some equity as a financial cushion.
Two common ways to pull equity out of land
Cash-out refinancing. This replaces a current land loan with a new, larger loan. The new loan pays off the existing mortgage, and the borrower receives the difference in cash.
The new loan is based on the current market value of the land. For simplicity, let’s say a landowner has ground appraised at $2 million. The outstanding estate debt on the land is $400,000.
If the lender is willing to lend up to 60% of the appraised value, that is $1.2 million. The new loan would pay off the existing $400,000 debt. The remaining $800,000 could be available to the borrower.
| Current land value: | $2,000,000 |
| Maximum loan amount at 60% LTV: | $1,200,000 |
| Existing paid-off debt: | $400,000 |
| Potential cash-out proceeds: | $800,000 |
Cash-out refinancing allows a landowner to access equity without selling land. However, it also creates a new loan structure. It is important to understand:
The current loan rate compared to the new one.
Total interest to be paid over the life of the loan.
Repayment terms. Do they change?
Annual payment. Is it higher or lower?
New structure’s impact on an operation’s long-term position.
Land equity loan or line of credit. Instead of refinancing the existing mortgage, a landowner may use farmland as collateral for a separate loan or line of credit.
This allows the borrower to access equity while keeping the original mortgage in place. This may be important if the existing loan has a favorable interest rate or terms that the borrower wants to keep.
A separate land-secured loan or line of credit can be used for flexibility, capital improvements, expansion, or restructuring other debt. The right structure depends on how the funds will be used and the borrower’s financial position.
Can I use land equity as a down payment?
Landowners can use their equity as a down payment on additional ground or another asset.
However, it does not work the same way as cash. The borrower is pledging existing land as collateral rather than bringing cash to the table. A lender will evaluate the appraised value of the land, existing debt, and available equity. A portion of that equity can help satisfy down payment or collateral requirements.
This can be useful for producers who want to expand while also preserving working capital. It can also be helpful when timing matters, such as the sale of adjoining ground or a strategic parcel.
While using land equity as a down payment can reduce upfront cash requirements, it does not eliminate repayment risk.
When does it make sense to use land equity?
Tapping land equity is a strategic tool. The key is to use it in ways that strengthen an operation’s long-term position, and to have a clear repayment plan from the outset.
The key question is not just, “Can I borrow against my equity?”
The better question is, “Will using this equity make the operation stronger after the debt is added?”
Equity might help finance a land purchase. But does that land purchase actually improve efficiencies, scale, or long-term control?
When should land equity be protected?
Protecting equity can be just as strategic as using it. For many producers, land equity represents decades of work, family sacrifice, and financial discipline. It should be used with purpose.
If borrowing against land equity creates more risk than benefit, a producer is wise to protect the equity. Here are a few examples of when the smart move might be to protect equity:
New debt would be used mainly to cover recurring operating losses
The repayment source is unclear
The operation is already short on working capital
The new loan would replace low-interest debt with higher-interest debt without a clear benefit
The borrower is relying on optimistic commodity prices or perfect yields to make the payment
The land is central to family legacy or succession plans and additional debt could create family tension
The operation has limited ability to absorb a downturn in land values, income or margins
What should I consider before borrowing against land equity?
Before borrowing against land, consult with your advisory team. Your lender, accountant, and attorney can provide valuable insights. This is particularly important when land equity is tied to estate planning, tax strategy, or ownership transition.
Here are some questions that can help you arrive at the answer that is right for your operation:
What is the purpose of the funds?Will this improve cash flow, reduce risk, create income or support long-term growth?
Can the new debt be repaid from reliable cash flow?
What happens in a normal year, a strong year and a weak year?
Am I refinancing out of a lower interest rate?
Will the new loan increase total interest costs or extend debt longer than planned?
How much equity cushion should remain?
What happens if land values soften?
How will this affect working capital?
Am I preserving liquidity or using equity because cash flow is already strained?
How does this affect family or succession plans?
Will the decision create clarity or conflict for the next generation?
What are the loan terms—interest rate, term, amortization, payment schedule, prepayment options, collateral requirements, fees, and covenants?
The more equity you have in your land, the more financial flexibility you may have. But equity should be managed with care.
Strong land values may increase borrowing options, but they do not eliminate the need for cash-flow discipline. Any use of land equity should be tied to a clear purpose, a realistic repayment plan and a strategy that strengthens the operation over time.
Land equity can help fund opportunity, manage risk and support generational goals. The goal is not simply to unlock value. The goal is to use land equity wisely, when and where it improves the long-term financial position of the farm.
Ready to unlock the value of your land? Your local financial officer can help guide you through the process.
