Farms require large equipment to run properly and profitably, but that equipment can cost hundreds of thousands of dollars. You most likely don’t have that much cash on hand to put down. Even if you do, you will most likely require the funds for additional farm-related expenses. This is where farm equipment loans can help. Farm equipment loans are an important source of funding for agricultural farmers around the country.
These loans help farmers buy the farm equipment they desperately need, whether it’s irrigation equipment, a high-tech fertilizer spreader, or a tractor-trailer. Farm equipment loans have been especially helpful when farmers upgrade their equipment to better care for their crops or livestock. This guide looks at financing options for farmers and how you can get a farm equipment loan to cover your needs.
What are Farm Equipment Loans?
Farm equipment loans allow farmers to get the necessary equipment for their farms. Farm equipment loans are usually for the period of 12 to 60 months, with the equipment being used as security. These types of loans often include weekly or monthly repayments. You can either finance the purchase or lease it with farm equipment loans. When you finance the purchase, you own the equipment after you pay off the loan. With equipment leasing, you must return the equipment when the lease term ends or make an inflated payment to buy it.
If you will not be using the farm equipment for a long time or plan to upgrade anytime soon, leasing this machinery may be the best option. You are protected from depreciation by leasing. The disadvantage of leasing is that you cannot deduct lease payments from your business taxes, nor can you build equity with the equipment. Another advantage of borrowing or leasing equipment is the quick approval rate. This can be significant if you attempt to replace the pricey equipment required to keep your farm running.
Types of Farm Equipment Loans
The type of farm equipment loan depends on several criteria, including how much down payment you can afford, how quickly you need the money, and your financial status, including cash flow and company credit score. Some great options for financing farm equipment include:
Captive Lenders
Just as with other business loans, many financing companies offer financing for farms at competitive rates. These financing companies establish a branch or arm of a farm equipment manufacturer or dealer. When you buy their products, they will offer you financing choices, similar to car dealerships. They will also provide a variety of purchasing and leasing options.
A few names dominate the farm equipment sector, some of which have their own financing departments. Captive financing companies include John Deere Financial. It, like car manufacturers, provides financing for its farm equipment through its dealers. The interest rates charged by captive lenders vary depending on your credit rating and company’s performance; they can be as low as 0% and as high as 4%.
Bank Loans
As with other business loans, bank loans are another viable alternative for farmers seeking a loan. The banks provide low, competitive interest rates for new and used farm equipment. Borrowers can repay these loans monthly or annually, depending on the financial institution and the amount of loan they need. The bank may require a down payment, and you will usually be expected to produce extensive documents.
Alternative Lenders
With traditional banks tightening credit requirements over the last decade, alternative lenders have stepped into the small business lending space, giving farmers reasonable finance without many of the hassles that traditional lenders require. Alternative farm equipment loans are ideal for companies that lack the credit necessary by banks, lack the profitability expected by banks of small businesses, or do not want to wait weeks or months for funding from a bank.
How to Qualify for Farm Equipment Loans
You must meet the lender’s requirements to qualify for a farm equipment loan. Lenders consider how dangerous it is to lend to you and how likely you are to fail on your farm equipment loan, just like they do with other small business loans. They often determine this through the farm company’s credit score. There are several ways to improve your company credit score and increase your chances of qualifying for a farm equipment loan.
A lender may also consider how long you’ve been in the agricultural business and your income. Your capacity to make a higher down payment will most likely influence your interest rate. Plus, some lenders want to see your dedication to farming. So, you may want to show signs of seriousness towards your work.
How to Choose the Right Equipment Loan for Your Farm
Financing can be a terrific way to pay for farm equipment purchases, but you need to make an informed decision about your farm’s equipment needs. Consider how much of a loan payment you can afford to make every month when selecting an equipment loan for your farm. Although you may have to pay more upfront, a fixed-rate farm equipment loan can be more expectable than a variable rate. Even if you believe you need the money right away, it is advisable to conduct thorough research so that you do not make a rushed and perhaps dangerous decision.
Finding the Best Farm Equipment Loan Option
The good news is that there are several opportunities for farm equipment loans for farmers. Before you begin your search, ensure you thoroughly understand your finances, including your company credit score, bank balances, and any outstanding obligations. All of these factors will be considered by a lender when determining whether you qualify for a loan.
At United Farm Mortgage, we can help them with just the right equipment financing for your farm. We can help your farm get the equipment it needs with simple financing. Whether buying new farm equipment or upgrading to the latest machinery, we offer solutions to your farm’s unique needs. Do you have questions, or are you ready to get started? Reach out to us to learn more.
References:
- https://www.nav.com/blog/farm-equipment-loans-1340309/
- https://www.farmermac.com/pros-cons-alternative-lending/
- https://www.fastcapital360.com/business-loans/industry/agriculture/
- https://www.nav.com/blog/farm-equipment-loans-1340309/