There are many ways to finance your farm equipment purchases. Which tractor financing method you choose will depend on many factors including your credit, where you live, the size of your farm, the amount of loan you need, and any special programs you may be eligible for. Many of these special programs and loan options are available, so it is often recommended that you visit your bank branch and speak to your loan specialist when you begin to explore your options.
Conventional loans through a lender
Established farmers with some credit are eligible for conventional agricultural loans, which generally have simpler applications, fewer restrictions and competitive rates. These loans can often be used to purchase new or used equipment and typically have terms ranging from one to five years. Farmers can work with their local lender or find competitive national rates online. Also consider that working directly with your bank can also give you more flexibility. Since community lenders are familiar with a variety of local and national products, they may be able to find something to suit you, even when other options are not available.
Financing or leasing through a dealer
Sometimes dealers are able to offer tractor financing at very low interest rates and it is a good idea to study the offers available as you explore your options. However, to qualify for the best deal offered by dealers, borrowers will need to have an established financial record and cash for a down payment (usually 20%). Otherwise, the interest rates can be considerably higher. Borrowers are often expected to have good credit scores and have been in business for at least two years. Most of the time, used equipment will not be considered for these offers. In addition, the low interest rate is sometimes introductory and only applies to an initial part of the loan. Be sure to research the advertised loan terms before stepping into a dealership to avoid high pressure situations that lead to unwanted terms.
Equipment rental is another option available from dealers and has become increasingly popular in recent years. the case for them. Here is an example provided by Jesse Newman and Bob Tita of the Wall Street Journal in a recent article:
A new tractor that costs $ 250,000 can be leased for around $ 30,000 per year. This compares to the cost of buying a loan, which would require a 20% down payment of $ 50,000 and over $ 40,000 per year in installments over five years for the remaining $ 200,000 with 5% interest.
Remember that when you have finished paying off a loan to buy a tractor, that tractor and all the depreciated value it has retained is yours. While lease payments can be similar to loan payments, with a lease, the tractor eventually goes to the dealer. If you are looking to keep equipment for the long term and can afford a slightly higher monthly payment, it is advisable to take out a loan rather than a lease. In their article, Pros and Cons of Outdoor Equipment Rental, Successful Farming provides an in-depth look at this complicated debate.
USDA Guaranteed Loans
The USDA Agricultural Services Agency (FSA) offers guaranteed loans to farmers available from local lenders. These loans are USDA guaranteed against losses of up to 95%, which limits the risk lenders take when lending money to farmers who cannot qualify for traditional loans, putting credit at risk the reach of many. Moreover, these loans are not limited to the purchase of new equipment from resellers. USDA guarantees loans of up to $ 1,750,000 (2019 rates, based on borrower’s qualifications) with terms between one and seven years, and interest rates are negotiated with the local lender who assists the loan. To apply for these loans, you need to go to your local lender, who will provide you with the appropriate forms and help you submit them. USDA also offers direct loans of up to $ 400,000, also with terms of one to seven years and fixed interest rates. For more information, see the USDA Guide to FSA Agricultural Loans or contact your local lender.