The Basics of Farm Equipment Financing


Farm equipment loans are sometimes the sole option available to farmers and other agricultural producers to purchase expensive equipment. USDA farming loans and other financing choices are discussed in this handbook.

Loans for farm equipment are a critical source of funding for agricultural farmers. Lenders are accessible for every kind of farming machinery you may be looking for, from an irrigation system to the latest high-tech fertilizer spreader.

Farm equipment loans have been incredibly beneficial when farmers upgrade their equipment to better care for their crops. Fertilizer may be applied to crops using self-guiding tractors and commercial applicators.

“Most farmers will finance their agricultural equipment purchases via leases or installment loans,” said Algernon Ronson, director of marketing for Oak Park Financial in the United States and Canada. “A significant advantage is the capacity to protect cash flow. You do not need to commit the real cash upfront.”

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How do agricultural equipment loans work?

Farm equipment loans enable farmers to acquire equipment. Farm equipment loans are typically short-term, lasting between 12 and 60 months, with the collateral being the equipment being financed. These sorts of loans often include weekly or monthly payback payments.

“It appeals to farm owners because the payments are set,” said Kevan Wilkinson, Balboa Capital’s digital content manager. “As with a mortgage, you always know your payment. There is never an element of surprise.”

You have two options with agricultural equipment loans: finance the purchase or lease it. When you invest it, you own the equipment after the loan is paid off. You must either return it or make a balloon payment to buy it after the lease period when you rent equipment.

Leasing may be more cost-effective if you are not planning to use the equipment for an extended time or if you want to update the equipment every few years. Leasing protects you against depreciation. The disadvantage of leasing is that you cannot deduct lease payments from your company taxes, and you cannot create equity in the equipment.

Another advantage of financing or leasing equipment is expedited approval and money. This is vital if you replace pricey equipment critical to the operation’s continued success.

“Banks need collateral and, in most circumstances, extensive financial documentation going back two or three years, as well as a better credit score,” Wilkinson said. “The majority of agricultural equipment lenders may provide loans of up to a quarter million dollars on the same day you apply.”

Who are the lenders of agricultural equipment?

Borrowers of agricultural equipment have several options. There are many farm equipment loan methods, ranging from government-backed loans to alternative lenders.

USDA loan programs for farmers

The United States Department of Agriculture (USDA) assists farmers and ranchers in establishing, expanding, and maintaining their farms. The loans are intended for individuals who are unable to get credit elsewhere. According to Zach Ducheneaux, head of the USDA’s Farm Service Agency, most loans go to socially disadvantaged farmers, newcomers, and those who have encountered economic difficulties.

USDA makes direct loans and government-guaranteed loans to lenders. It’s comparable to the SBA’s lending program. “Borrowers cannot come to us first because of how the legislation is worded.”

USDA agricultural loans provide low-interest rates to eligible borrowers, but they often need extra paperwork and approval time. USDA loans are available in a variety of forms, including:

Loans for agricultural operations: These loans may acquire animals, seeds, and farm equipment. It may also be used to pay operational and living expenses while establishing and maintaining a farm.

  • Loans for farm ownership: These loans may be used to acquire a farm or ranch or expand an existing one.
  • Microloans: These are small loans of less than $50,000. They are intended for beginning farmers and ranchers who need just a minimal amount of initial funding.
  • Emergency loans: These loans are intended to assist ranchers and farmers in recovering following a natural catastrophe or another calamity, such as a worldwide epidemic.

Captive lenders

A few well-known brands control the agricultural equipment sector, some of which have their finance divisions. These lenders, referred to as captive finance businesses, collaborate with you at the point of sale to finance your purchase.

A captive financial corporation, like automobile manufacturers, provides financing for its goods via its dealers. “Frequently, the items will include an inducement, such as a cheap rate,” Ornelas said.

Interest rates charged by captive lenders vary according to your business’s performance and credit rating; they may range from 0% to roughly 4%. AGCO and CNH Industrial are two more significant agricultural equipment manufacturers that provide farm equipment financing.

Loans from banks

A bank loan is another alternative for consumers with decent credit. Due to Farm Bureau Bank’s concentration on agricultural companies since 1999, it is a favored lender for farmers. The bank provides low, competitive interest rates, financing up to 90% for new equipment and 85% for old equipment and seven-year periods. Borrowers may repay loans monthly, quarterly, semiannual, or annual. Down payment may be needed, and you will usually be expected to produce extensive paperwork.

Alternative lending institutions

Numerous alternative lenders provide farm equipment loans to consumers seeking speedy finance and an uncomplicated approval procedure. Among the providers are the following:

  • AgDirect: AgDirect provides agricultural equipment loans beginning at $5,000 for purchases at dealerships. Repayment periods of up to seven years are possible. Rates vary between 2.4 percent and 6.75 percent, depending on the duration and amount of the loan and your credit history.
  • Balboa Capital requires borrowers to have been in business for at least a year, have a fair credit score, and produce at least $100,000 in yearly sales. Balboa Capital provides same-day finance up to $250,000, an online application procedure, and no collateral is required. Additionally, it has adjustable term lengths and set monthly payments. [For further information about this lender, see our Balboa capital evaluation.]
  • Farm Credit Mid-America: This lender provides a range of agricultural and ranching loans and farm equipment loans. It makes loans between $1,000 and $75,000. You may apply directly on the company’s website. Agricultural Credit Mid-America provides farm equipment, short-term loans, and lines of credit.

Agribusiness loan frequently asked questions.

What kinds of agricultural equipment qualify for farm loan financing?

Loans for agricultural equipment range from farms to tractor-trailers. According to Wilkinson, loans may be utilized to purchase any equipment necessary to maintain a farm or ranch. According to Wilkinson, Balboa Capital receives a high volume of agricultural irrigation and water dispersal equipment requests. Additionally, farmers often borrow money for equipment used to plant seeds, fertilize the soil, and manage crops.

What documentation is necessary to get a farm loan?

Depending on the lender, you may be expected to provide reams of documents or financial information dating back two years.

You must present the following paperwork when applying for a USDA loan:

  • A company plan that details your current and future activities
  • A financial history spanning three years
  • Three-year history of production
  • Creditors in the present
  • A statement of financial position
  • Your actual estimated income and costs
  • Describe your farm education and experience
  • Three-year tax returns
  • Contracts and leases
  • Environmental stewardship

You must present the following paperwork to get a loan from an alternative lender:

  • Government-issued identification
  • Account statement
  • Returns on taxes
  • Financial statements for businesses
  • Federal tax identification number

How long are agricultural equipment loans?

Farm equipment loans are often for a limited time. Typically, you may finance the purchase of farm or ranch equipment for up to seven years.

Who qualifies for a farm loan?

Agriculture loans are available to beginning farmers and those who already own a farm or ranch. Loans are provided to struggling farmers and historically underrepresented groups in the business. Your credit history and financial performance will dictate which loans you qualify for and what interest rate you will pay. The better your credit score, the less expensive financing agricultural equipment usually is.

Is it possible to get farm equipment financing with a poor credit score?

Numerous alternative lenders evaluate your application based on variables other than your credit score. If you are denied, USDA agricultural loans are an excellent alternative. USDA is a lender of last resort; they ask you to look for a loan elsewhere before contacting the USDA for help. These loans provide low-interest rates and flexible repayment options, but qualifying for them requires paperwork. You must provide a complete business report with a USDA agricultural equipment loan, which specific alternative lenders and captive financing businesses do not need.


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