Where would your farm be without equipment? When it comes to farming, equipment is all around us. From the set of sockets on the work bench all the way up to the combine that we use to harvest the crop, we are constantly using a piece of equipment on the farm. If you can’t pay for your equipment out of pocket, your best option may be to seek equipment financing.
When purchasing a piece of farm equipment there are several questions to consider:
- Will you be trading in an older piece of equipment?
- Will you be putting money down at the time of purchase?
- Is the piece of equipment you are purchasing new or used?
Once you have answered these questions and have concluded you don’t have enough resources to purchase it outright, it is time to start exploring your financing options. If you are a new borrower and do not have a relationship with a current lender, then we will need to gather some information on your operation, as well as a credit score. In general, it is always good to have some form of credit history and a good credit score when seeking a loan.
The basic financials that a lender will want to gather when doing a machinery loan includes your total assets, total liabilities, off farm income, and gross farm income. These numbers allow us to score the loan and get back to you quicker. If we are not able to score the loan, then we would like to get a balance sheet and three years of taxes.
Once approved, you and your lender will discuss what interest rate product is best for your situation. Options to consider include locking in a rate for the full-term or picking a variable rate. At AgCountry, we tend to see a lot of the five-year IT Loans with a fixed rate. If the purchaser is someone who tends to upgrade equipment every few years, we may recommend a variable rate or a capital RLOC. Although five years is most common, we will do anywhere from three to seven years to meet the needs of our customer.
At the time of purchase, we would like to see the customer be able to put down a quarter of the stated price. If you are unable to come up with that level of down payment, we may need to look for extra collateral. This could include other machinery or vehicles to get us to that 25% figure. When lending a piece of equipment, it is important to talk about the security agreement and make sure that what is being used for collateral is described. Financing for a physical asset tends to be lower risk. Oftentimes, the physical asset you are purchasing serves as a form of collateral. This is called a purchased money security interest (PMSI).
Once all the paperwork is complete and the terms have been agreed on, we will gather a few signatures on the loan agreement as well as the security agreement. We will also take the down payment for the purchase at this time. After this is complete, we will take care of the paperwork on our end as well as get the loan amount sent over to the place of purchase for your new piece of equipment.
After covering the basics of machinery lending, I hope that this article demonstrates just how simple and efficient your borrowing experience can be the next time you are considering buying a new piece of equipment. If you have any questions about financing machinery, please contact your local AgCountry office.
