Businesses, startups and individuals in the agriculture space are increasingly finding themselves in need of farm equipment, often beyond their current budgetary allocations.
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In some instances, prospective borrowers may already have these equipment but only need to modernize them to suit their current agricultural needs. This is where farm equipment financing comes to the rescue.
It is a system where lenders offer partial or 100 percent financial output on behalf of clients and the client pays the amount over an agreed length of time. Vehicle and heavy equipment companies like John Deere often partner with such financiers, in what is known as “captive lending.” They do this to help their clients secure equipment and pay for them regularly in installments at a fixed or variable interest rate.
Let’s explore farm equipment financing.
What is farm equipment financing
Farm equipment financing are essentially loans given by banks and lending agencies to help entities and individuals buy farm equipment at competitive rates so as to boost their efficiency with the loaned gear.
When it comes to large-scale farming, equipment can be rather expensive. A current price value of a low horsepower tractor in the United States, for example, shows a starting figure of $9,600 while at the higher tier it comes at $75,300. These figures are way above what the average tractor buyer can afford upfront. This is where financing comes in and just like in a typical loan, the lender shoulders up to 100% of this loan on your behalf so that you can repay it for many months instead of in a lump sum.
Related: Tractor Financing
Types of farm equipment financing
There are two types of farm financing methods in the United States. The first type is direct financing and the second is leasing.
- Direct financing means gradual ownership of the equipment as long as you continue paying for it, at the end of which you own it completely.
- Leasing refers to term-based partial ownership of the equipment at a tax-affiliated regular fee, whereby the equipment is returned to the lender at the culmination of the term.
How fast can you get farm equipment financing?
Securing equipment financing is a rather fast process if you have the right documentation, but rather a slow one if you do not have these papers.
A person with fixed security on loan such as existing farm machinery or land, tax information and credit documentation covering the past 24 to 36 months and with a good credit score can access a loan within 24 hours of applying for it.
On the other hand, lack of a good credit score, like in a mainstream loan, drags the process a bit.
Which farm equipment and vehicles can be financed?
Farm equipment come in a range of choices from simple tilling tractors to heavy-duty harvesters.
Almost all can be financed depending on the company offering the solution. Here are the typical categories:
- Tractors for tilling and hauling
- Combine harvesters
- Farming All-terrain vehicles (ATVs)
There are also farm equipment parts for those seeking to upgrade the existing equipment, including:
- Seeders, e.t.c.
Who offers farm equipment financing in the US?
The Farm Service Agency (FSA), which is an arm of the USDA, provides government -backed equipment financing in the United States at the federal level. An affiliated branch is the Small Business Administration (SBA).
Both require a qualification assessment, and more or less may need proof, though not always, that you tried corporate financiers and failed. The process involves visiting the agency and filling out an application document. The state branch of the FSA or SBA can contact you if it establishes that you are eligible for the farm equipment financing.
Qualification for a government farm credit maturity period covers a comfortable period of seven years or less. The loans have a cap of $400,000 and a variable interest margin that changes monthly, for the FSA program.
Other entities that do farm equipment financing include credit unions, banks and equipment selling companies.
How to go about equipment financing when ordering farm equipment
The first step is to apply for an equipment financing loan either from government agencies or financial institutions. There are also captive lenders who sell equipment as well as affiliate themselves with financiers.
Upon qualification, you need to go through the following steps, using the USDA application process as default example:
- Like when starting a business, you are required to draft a business plan that details the equipment and vehicles you require, their uses and their long-term prospects. Presenting such a document to a lender adds credibility to your need for a loan.
- Provide documentation of both your business’ finance and the production record of the past 36 months.
- Present a document of people or agencies you currently owe money, if any.
- Provide an array of current profit and/or loss sheets and total expenditure information of your business.
- Hand over tax documentation of the last 36 months.
For corporate lending, the process is easier:
- Present your government ID to the bank or other lender, and include your banking statements.
- Include your US tax ID number.
- Feature income and expenditure figures from your farm.
After presenting this information, your loan by USDA can be approved within the same month while that by corporate financiers in a day.
How to get farm equipment financing from a credit union in United States
Federal credit unions operate in a similar manner as federal agencies. Therefore, going to a credit union can feel the same as securing a loan from USDA and its affiliates.
Credit unions not only extend affordable interest rates but also reinvest the margins gained in the same products that they help finance.
To get equipment financing from a credit union in the US, you are required to contact union personnel who will offer you a product or program tailored to your particular equipment financing.
Most unions invest in financing new, used or refinanced equipment. Thus, depending on your type of loan, you need to:
- Provide personal details including your Federal ID, tax information and current financial balance sheets.
- In case of refinancing at a lower rate from an existing lender, you need to provide the history of installment payments.
From here, the credit union will affix you a new interest rate and take over the loan. In case you are buying new machinery, the union will extend the most competitive rates currently available.
Current interest rates for farm equipment financing
The USDA has provided rates for farm-related loans effective April 1, 2023.
Direct financing under the ‘Farm Operating’ docket comes at a rate of 4.75% monthly rate.
At the corporate level, however, the rate is between 7 and 20 percent and it is dependent on the creditworthiness of the recipient. The higher your CR, the lower the rate and vice versa.
A 5-year loan comes at 6.85 percent in the corporate market. That of 6 to 7 years clocks around 6.95 percent while that of 2, 3 or 4 years has a rate of 7.5 percent.
Farm equipment financing companies
There are dozens of farm equipment financing companies in the United States. Some offer long-term,100 percent financing while others extend partial short-term loans.
In the rare cases where none of the corporate lenders administers your request for a loan, you can go to the last resort:USDA. The United States Department of Agriculture is often a last resort for those in dire needs of farm-related credit.
Otherwise, some of the lending companies for farm equipment financing include:
- Balboa Capital: With a rating of 4.5 on Forbes Advisor, it offers 100 percent loan options with a maximum borrowing figure of $500, 000
- OnDeck, with a maximum lending figure of $250,000 at a variable rate. It also offers as low as 5000 dollar loans on equipment
- US Business Funding. With a borrowing minimum of $10,00 and a limit of $50, 000, 000
- Currency Finance: Extends up to $500,000 to borrowers
Does John Deere offer farm equipment financing?
Yes, John Deer, which is one of the most prolific companies in the farm equipment realm in the US and beyond, offers equipment financing as a captive lender. The company offers both forms of lending: direct lending and leasing, each at competitive rates.
Is it possible to get used farm equipment financing?
Yes, it is easily possible to get used farm equipment financing at lesser rates than you would get for new equipment. The best bet for this type of lending is to go with a credit union, which reinvests on the products it helps its members access. This means that the used tractor or ATV you secure will be from a trustworthy source and in a good working condition.
Is there farm equipment financing if in bad credit?
Bad credit worthiness is one of the pitfalls of modern American borrowers, who find it difficult to secure a loan almost anywhere. However, it is absolutely possible to get farm equipment financing if you are in bad credit. Here are your options:
- Apply with an equipment seller that offers financing, such as John Deere does. Who knows, they might just listen
- You can also get financing in the form of a microloan of up to $50,000 from USDA, no matter how low your credit rating.