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Four Reasons to Use Farm Equipment Financing if You Have an Agricultural Venture

April 19, 2022 by BPM Team

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modern red tractor in the agricultural field

Owners of big farms can tell how demanding farms are for sustainability. They require machinery and equipment to run and be profitable as intended. However, the necessary equipment and machinery are very costly, and one may need massive amounts to purchase or even repair after a breakdown. Getting the funds for these operations may be challenging, but that is where farm equipment financing comes in.

What is Farm Equipment Financing?

Farmers can obtain these loans from lenders to purchase machinery, equipment, or tools required on their farms. They allow farm owners to maintain cash flow and run the farm smoothly and can be used to buy equipment for small and large-scale farms.

When Should Consider Farm Equipment Financing?

When equipment or machinery has been used significantly, as time passes by, the likelihood of it not functioning smoothly is always a factor. That is the right time to decide for repairs or need a replacement. If it requires to spend a lot of money on repairs, it may be time to get a loan to satisfy the need accordingly.

If the machinery is highly essential for farm business’s operation such that the farm will not run without it, then it is necessary to have these loans to work on the machinery or get a different machine.

If the machinary is not updated, having equipment financing to obtain more technologically advanced machinery is the need of the hour. Superior equipment proves to be more effective, efficient, and cheaper than outdated machinery. It will improve performance and, in most cases, be a worthy investment.

As with market products, the farm equipment market also keeps fluctuating. Before purchasing anything, it is always best to research the current market. This will allow owner to determine how the market affects the availability and cost of machinery or equipment.

Always obtain the information from an equipment dealer to see the changes likely to occur. Based on research, take a decision about the purchase of the new equipment, get the loan and get the equipment.

Top Reasons Why Should Opt for Farm Equipment Financing

It Comes with Relatively Good Rates

Farm equipment financing is top among the cheapest ways to obtain loans, but that depends on the lender and the business profile of farm. Farmers can even get farm loans with bad credit. USDA loans are some of the best options. They have low interests, and the terms are flexible. They, however, tend to involve too much paperwork, and it may take time before loan can be approved.

If owner gets a lender willing to loan him the money regardless of bad credit, he will find that they use a different metric to assess his repaying ability. They may base that on the returns he gets from the farm.

The downside to getting farm loans with bad credit is that the rates may be significantly high. To the lender, it is a greater risk. Another setback is that he may have to pay a more significant down payment and repay in a shorter period.

If you are looking to obtain a farm loan but have bad credit, working to improve your credit score is always worthwhile.

To Make Costs Manageable

The top reason any farmer would apply for farm equipment financing is when he has a challenge funding the operations. This can be a livestock operation, ranch, or dairy farm.

If you are looking to start a farm, obtaining the machinery and equipment is not easy as they are expensive. What’s more, farm equipment is typically used at once and may wear out simultaneously. These two factors can translate to significant upfront costs and make it difficult to run the operations seamlessly. The high expenditure can negatively impact the operations.

However, costs become manageable once you get the funds to cater to new equipment purchases. That’s because you get to boost production and eventually the profits.

It Can Help Save Money

Farmer may find that buying brand new equipment is too expensive and settle on using farm equipment financing to purchase secondhand machinery. That can also be an excellent investment, for example, for a tractor. He may be able to save even up to 50% of the money he would have obtained it with.

There are farm equipment financing options that cater to such needs. The rates will usually vary based on the lender.

Obtained Machinery or Equipment Can Act as Collateral

To any lender, giving a loan is a risk. That is why borrower will find many asking for collateral. Usually, lenders can obtain the collateral he provides if he fails to repay loan as per the agreement. The good thing with getting a loan to buy farm equipment is that the item to be purchased acts as collateral. With that, many lenders of farm loans are more comfortable lending the money.

Final Thoughts

A farm needs a lot of work and resources to give substantial returns or profits. Machinery and equipment are critical players in determining productivity. If you feel that the equipment or machinery you have is limiting the performance or efficiency, it may be time to consider farm equipment financing for the reasons highlighted above.

You may also like: Essential Do’s and Don’ts of Financing Your Startup

Image source: Shutterstock.com

Filed Under: Finance Tagged With: equipment, finance, Financing, loans

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