Pay for the equipment you need, when you need it.
The latest ag equipment to hit the market may be more accessible than you realize.
In this blog, we’ll reveal common factors that impact financing rates, explain why paying reasonable interest can actually increase your profitability, and share a free calculator that lets you see customized ag equipment loan options that may work for you.
Part of what makes determining “typical” interest rates complex is that they fluctuate based on economic conditions and are personalized based on a number of considerations. Leases and loans are often customized to your preferences and impacted by your farm’s financial standing.
Here are several factors that can affect your rate.
Economic factors such as the Federal fund rate and bond market can impact interest rates. When there is more uncertainty in the market or during inflationary periods, interest rates can go up.
The length of your lease or loan agreement can impact both your monthly payments and your total cost. There are usually lower monthly payments on longer leases, but this can result in paying more interest in the long run.
Interest rates can either be fixed or variable.
Fixed rates do not change over time. You know from the beginning what the interest rate will be, and it stays at that rate for the duration of the lease or loan.
Variable rates change depending on the current market interest rates.
There are different types of leases and loans available to support farmers’ various needs.
As an example, a capital lease can allow for an ownership transfer. A portion of the money paid during the lifetime of the lease can finance the purchase of the equipment after the lease ends. A capital lease typically does not have an extremely high interest rate.
Some ag equipment leases factor in farmers’ seasonal income, allowing higher payments during busy months and lower payments during slower months. Because this is riskier for the lender, these types of equipment leases often are more expensive.
There are a wide variety of Small Business Administration (SBA) loans, which farmers can use to purchase equipment with negotiable interest rates.
There are also loans that are available specifically for farmers who have served in the military.
The type of equipment you lease can sometimes impact your financing rate.
For instance, there may be higher rates associated with rapidly depreciating equipment. In contrast, there may be lower rates on equipment that holds its value because it is a lower risk to the lender.
Your farm’s financial position also impacts the interest rate you pay to lease a piece of ag equipment. Profitable farmers who pay leases, loans, and lines of credit on time and in full typically will not have much difficulty obtaining a lease and will be offered favorable interest rates.
If your ag operation has struggled to break even or become profitable, lenders may be concerned you will not have the funds to pay your lease or loan. Ag equipment can boost your profits by making you more efficient, which could reduce the number of workers you need, so there’s definitely a case for looking for a lender that will work with you.
Likewise, if you have a low credit score, you will be considered a riskier borrower. Late payments and having a high debt-to-credit ratio can hurt your credit score. Consider diversifying your credit types and paying down your account balances to improve your credit score before you apply for a lease.
Startups don’t have a proven track record they can share with lenders, which can make it more difficult to obtain financing. Farming is a capital-intensive industry, and first-time farmers may be learning on the job about soil health, cattle stress, and buying farmland, which can eat at their profits.
Leasing companies prefer to work with more established farmers, who have learned the ropes of managing seasonal income and riding out the “down” years. Companies less than two years old may have to pay higher interest rates.
Even though ag equipment can be an expensive line item in your budget, regardless of whether you lease, get a loan, or purchase it outright, it can still be worth the upfront costs. The opportunities associated with using ag equipment can exceed the cost of interest rates.
Consider the following:
Ag equipment can cost as much as a down payment on property, and financing can help you access the equipment you need faster than saving for the full price of purchase. Take advantage of great rates to fund your equipment needs now.
Today’s big farms utilize the best technology available. You don’t have to use the latest technology, but making smart choices in what ag equipment to use can help you remain competitive.
Whether you’re using a loan to upgrade your current equipment or leasing the hottest new agtech solution, financing equipment can help you stay current with modern farming practices. By learning how to use new technology, you have the opportunity to advance your ag operation.
It may sound counterintuitive, but spending money can sometimes reduce your expenses. Investing in certain types of agricultural equipment can reduce your reliance on hired workers and make those you do employ more efficient.
When ag equipment reduces your overhead and increases your production, you can become more profitable. You can then use this surplus to expand your farmland.
Use the free Equipment Loan Calculator from FBN Finance to estimate your personalized loan options. The calculator allows you to adjust for:
Loan amount
Credit score range
Loan length
Payment frequency
The transparent results will help you make a more informed ag equipment loan decision.
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Financing offered by FBN Finance, LLC and its lending partners. Available where FBN Finance, LLC is licensed. Terms and conditions apply. To qualify, a borrower must be a member of Farmer’s Business Network, Inc. and meet all underwriting requirements. Interest rates and fees will vary depending on your individual situation. Not all applicants will qualify. NMLS ID: 1631119.
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