Overview
Farming equipment is often very expensive, and it would be a huge challenge for most farmers to either start operating or replace old equipment if they had to pay for it straight out of their own pocket. Luckily for everyone who likes to eat food, agricultural finance exists so that they don’t have to.
This is when lenders loan farmers the money for the equipment they need, and it’s essentially no different to any small business loan except that the purchased equipment will usually serve as collateral, and the money is often delivered to the farmer’s bank account very quickly – often in as few as 10 business days.
If you’re looking to finance your own purchase of farm equipment, whether it’s for a new venture or to improve your existing one, here are the tips you need to know to find a reliable lender.
Understand your situation
When it comes to agricultural equipment finance, it’s important that you pick the right partner. You are quite literally looking for somebody that you can do business with, but so are they. And since they are the ones assuming the risk at this stage, there are likely to be some requirements they’d like you to meet.
These requirements will differ between lenders, and since being rejected could have an impact on other applications you make, it’s important to assess your circumstances and apply to lenders where you’ve got the best chance of acceptance.
Two things that will have a big impact are your credit score and the annual income your farm generates. They’re also likely to want to know how many years you’ve been farming.
Consider different types of lenders
Financing for farming equipment is offered by lots of different firms, from large banks and multinationals to small specialist lenders. The reason to take a look at all of them is partly about convenience – some have a purely online application while with others the process is a little more involved. But it’s also about where you’re more likely to be accepted.
The big players tend to focus more on credit scores and set high requirements because they have to deal with many more applications, while smaller local lenders might be willing to overlook a lower credit score if they know you well or you can provide them with references.
Make sure their loan terms suit you
One of the questions you should always ask private lenders is what the loan terms are. At the very least, you will need to know the dates when you are expected to pay. This is especially important as a farmer because your cash flow will vary depending on what season it is and what produce you are growing.
You should also find out about what happens if things unexpectedly go wrong. As a farmer, your business is always at the mercy of Mother Nature to some extent. If your crops are destroyed by freak weather, how will your lender respond?
Conclusion
Farm equipment financing can be a great way to get your hands on new equipment quickly without having to pay a large up-front sum, but it’s important to choose the lender wisely. As alternatives to financing, there are also grants for agriculture and equipment leasing services available.
