Farms of all sizes require large, expensive equipment to operate. Whether you’re just starting out and need new equipment or are expanding your farming operations, agricultural equipment like tractors, harvesters, irrigation systems, seeding systems, fertilizer systems, and plows are all important tools whose cost can add up quickly. Luckily, there are financing options available for farmers and ranchers of all sizes. Read on to find out about the type of financing available to farmers for equipment.
Types of Farm Equipment Loans
There are many different types of farm loans available to meet the needs of any size of farm. In general, there are two options of financing equipment: purchasing outright or leasing. The difference between these two options is that when you purchase it, you own it outright when you’re done paying off the loan; if you lease the equipment, you give it back at the end of the term. You may also purchase the equipment from a lease with a large payment.
Regardless of whether you lease or buy the equipment, there are several different financing options for farm equipment. The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) has several farm loan programs available to farmers, whether you’re starting out or looking to expand. A few of the types of loans offered by the USDA are :
- Operation or operating loans — These can cover equipment as well as seeds, livestock, and operating expenses while a farm gets up and running, including family living expenses.
- Farm ownership loans — These loans are used to buy a new farm or expand an existing one, including fixing or constructing buildings and protecting soil and water.
- Microloans — For small farms or farmers who are just starting out, microloans may be a good option. They have fewer requirements and less required paperwork, although they won’t provide as much funding as other loan options.
- Emergency loans — If your farm has been subjected to a natural disaster like a drought or flood, you may be able to secure an emergency loan to help recover.
Beyond the USDA programs, there are several other farm equipment financing options:
- Captive finance companies — These are financing companies set up as an arm or branch of a farm equipment dealer or manufacturer. They will offer you financing options on their own products when you acquire them, similar to a car dealership. They’ll also offer several leasing options and purchase options.
- Bank loans — Just as with other business loans, many banks offer financing for agribusiness with competitive rates. There are many banks who focus on lending to farms, too.
- Alternative lenders — If you’re looking for cash quickly and don’t want to deal with a lengthy application process, there are many alternative lenders that offer equipment financing programs.
The Best Loan Options for Financing Farm Equipment
What type of loan you opt for will depend on a number of factors, including how quickly you need the money, what kind of down payment you can afford, and your financial situation, including business credit score and cash flow. A few great options for financing your farm equipment include:
Equipment Leasing by American Capital Financing
American Capital offers equipment financing, including agricultural equipment, from . The cost factor rate varies from .
Equipment Financing by LendSpark
Another general equipment financing provider is LendSpark, which offers financing with an annual percentage rate ranging from depending on your qualifications.
Farm Credit Services of America offers farmers AgDirect Equipment Financing, a program that allows you to purchase, lease, or refinance farm equipment. They offer flexible terms and attractive interest rates.
*All information about the AgDirect equipment loan has been collected independently by Nav. This option is not currently available through Nav. To see what equipment loans are available, please visit the Nav Marketplace.
Farm Credit Mid-America
Another farm-based lender is Farm Credit Mid-America, which offers loans as small as $1,000 with the option to apply directly on their website for any amount less than $75,000. They also offer lines of credit and different term loans.
*All information about the Farm Credit Mid-America equipment loan has been collected independently by Nav. This option is not currently available through Nav. To see what equipment loans are available, please visit the Nav Marketplace.
The FSA farm loan programs are an excellent option for farmers who may have poor credit or other issues that can keep them from being attractive to a more traditional lender. Similar to small business loans offered by the SBA, these financing programs provide other support and resources specific to farmers. However, these loans are generally only available to farmers who have tried all other types of equipment financing and have been unable to find a lender.
How to Qualify for Farm Equipment Loans
As with any financing, in order to qualify, you’ll have to meet the lender’s criteria. As with other small business loans, lenders are looking at how risky it will be to lend to you and how likely you are to default on your loan. The number one way they figure this out is through your business credit score. A higher score means you’re more likely to be able to make your monthly payments, based on your previous experience with financing. Nav has several ideas to help you build your business credit score to make you more attractive to qualify for a farm equipment loan.
Other factors that a lender may take into consideration are how long you’ve been in business and what your annual revenue is. Your ability to make a larger down payment will probably determine your interest rate, too. All of these factors aren’t insurmountable, but they will affect your options.
Some farm lenders want to see your commitment to farming, too. Attending workshops or other training programs can help you be prepared to answer questions about your seriousness with regard to farming.
Again, if you don’t qualify for more traditional financing, the USDA loan program is always an option. Also, the captive lender programs from agricultural equipment manufacturers may offer more flexible financing options for farmers who don’t meet traditional lending requirements.
Apply for Farm Equipment Loans
Lenders will require a number of documents and financial statements to make sure you qualify for their financing. Have these documents ready when you apply:
- Government-issued ID
- Banking statements, including personal statements
- Tax returns from the past three years
- Federal tax ID number or social security number
The USDA loans will require the following information in addition to the documents listed above:
- Your business plan
- Production history from the past three years
- List of your current debts
- Your balance sheet
- Projected annual income and expenses
- Your farming resume, including training and experience
- Any leases and contracts
- Proof of environmental compliance
How to Choose the Right Equipment Loan for Your Farm
Financing can be a great way to cover equipment purchases for your farm, but you want to make sure you’re making the right choice for your situation. When choosing an equipment loan for your farm, take into account how much of a loan payment you can afford to pay off on a monthly basis. A fixed rate loan can be more predictable than a variable rate loan, although you may have to pay more upfront. Even if you feel you need the money quickly, it’s best to do a good amount of research so you don’t make a hasty and more risky decision.
Nav can help show you all your financing options for farm equipment and more. Just sign up to see your business credit score and get customized lending and credit card options.
What kind of loan can I get for a tractor?
You can use any of the equipment financing services listed above to get a loan for a tractor. A captive lender program is a great way to get a loan for a tractor. Whether it’s new or used, the dealer will offer leasing and purchasing programs that can help you secure the tractor.
How long will a bank finance a tractor?
The terms of any loan will depend on the number of years you’ve been in business and your credit score. If you’re able to pay higher financing charges, you can secure a 36-month term loan, but banks will finance them for up to 60 months.
How hard is it to get tractor financing?
With a good business credit score and other factors, securing financing for a tractor isn’t hard. However, even with poor credit, few years in business, or other disqualifying factors, there’s government financing available through the USDA and programs through manufacturers and vendors.
This article was originally written on April 21, 2022 and updated on September 8, 2022.