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The Ins and Outs of Farm Equipment Loans

Donna Fuscaldo
Donna Fuscaldo
Senior Finance Writer

Farm equipment loans are often the only option for farmers and other agricultural producers to afford pricey equipment. In this guide, we explore USDA farm loans and other lending options.

Farm equipment loans are a vital financing tool for agriculture producers across the country. Whether you need to purchase a tractor-trailer, irrigation equipment, or a high-tech fertilizer spreader, there are loans available that can help you buy the equipment you sorely need.

Farm equipment loans have proven particularly useful as farm owners modernize equipment to tend to their crops. With self-steering tractors and commercial applicators that fertilize crops at the micro level, farmers need an affordable way to take advantage of the latest technological advances in agriculture.  

"The majority of producers will leverage some kind of financing for purchasing farm equipment either [utilizing] installment loans or leases," said Ryan Steenblock, director of marketing for the U.S. and Canada at John Deere Financial. "A major benefit is the ability to preserve cash flow. You don't have to invest all the capital upfront."  

What are farm equipment loans?

Farm equipment loans provide financing so that farmers can purchase equipment. Farm equipment loans tend to be short-term, lasting 12 to 60 months, with the equipment you're financing serving as collateral. These types of loans typically have repayment installments made on a weekly or monthly basis.

"It's attractive to farm owners because the payments are fixed," said Kevan Wilkinson, manager, digital content at Balboa Capital. "You always know your payment, like a mortgage. There's never a surprise."

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There are two options with farm equipment loans: You can finance the purchase or lease it. When you finance it, you own the equipment once the loan is paid off. When you lease equipment, you must give it back at the end of the lease term or make a balloon payment to purchase it.

Leasing may be more sensible when you don't need the equipment for a long period of time, or you plan to upgrade the equipment every few years. Leasing protects you from depreciation. However, the downside of leasing is that you can't write-off your lease payments on your business taxes, nor are you able to build equity in the equipment.  

Another consideration of financing or leasing equipment is that you get speedy approval and funding. That can be critical if you are trying to replace expensive equipment that is essential to keep your operation moving forward.

"Banks require collateral, and in most cases, they also require a lot of financial paperwork dating back two or three years, and a higher credit score," said Wilkinson. "Most farm equipment lenders can loan up to a quarter-million dollars the same day as you apply."  

TipTip: If you need farm equipment financing fast, you might want to search for a captive finance company or an alternative lender. These lenders offer online applications, fast approvals, minimal documentation requirements and quick funding times. However, they charge more interest than what banks charge.

Who are farm equipment loan providers?

Options abound for farm equipment borrowers. From government-backed loans to alternative lenders, here are some ways to get a farm equipment loan.  

USDA farm loan programs  

The United States Department of Agriculture (USDA) provides financing to farmers and ranchers to get started, expand or maintain their farms. The loans are aimed at borrowers who can't secure credit elsewhere. Zach Ducheneaux, administrator of the Farm Service Agency at the USDA, said many of the loans go to socially disadvantaged farmers, those who are starting out, or those who have faced economic hardship.  

The USDA offers both direct loans and loans the government agency guarantees for lenders. It's similar to the Small Business Administration's loan program. "Because of the way the statute is written, borrowers can't come to us first. In many circumstances, they have to try to get credit elsewhere and prove they tried to get credit elsewhere," said Ducheneaux.

Eligible borrowers pay low interest rates with USDA farm loans, but there tends to be more paperwork and longer approval times. The USDA offers several loan types including:  

  • Operation loans: These loans can be used to purchase livestock, seed and farm equipment. It can also be used to cover operating costs and living expenses when one is getting a farm up and running.
  • Farm ownership loans: Proceeds from these loans can be used to purchase a farm or ranch, or expand an existing one.
  • Microloans: These are small-sized loans of around $50,000 or less. They are aimed at new farmers and ranchers who need a small amount of startup capital.  
  • Emergency loans: These loans are targeted at ranchers and farmers to help them recover from a hardship caused by a natural disaster or other calamities, such as a global pandemic.  

Captive lenders  

The farm equipment industry is dominated by a few names, some of which have their own financing departments. Known as captive finance companies, these lenders work with you at the point of sale to provide financing for your purchase.  

John Deere Financial is an example of a captive finance company. It offers financing for its products through its dealers, similar to vehicle manufactures. "Oftentimes, the products will carry some incentive such as a low rate," said Steenblock. "It's very much like you see in the auto industry."

The interest rates from captive lenders varies, as it depends on your business's performance and credit profile; it can be as low as 0% and as much as around 4%. Other leading farm equipment manufacturers that offer farm equipment loans include AGCO and CNH Industrial.

Bank loans  

For borrowers with good credit, a bank loan is another option. Farm Bureau Bank is a popular lender for farmers, given its focus on agriculture businesses since 1999. The bank offers low, competitive interest rates, up to 90% financing for new equipment and 85% for used equipment, and terms that last seven years. Borrowers can pay back their loans monthly, quarterly, semiannually or annually. The bank may require a down payment, and you're typically required to provide a lot of documentation. [Looking for financing for your business? Read all our reviews of the best small business lenders.]

Alternative lenders  

For borrowers who seek quick funding and an easy approval process, several alternative lenders provide farm equipment loans. Providers include: 

  • AgDirect: AgDirect offers farm equipment loans for purchases at dealerships starting as low as $5,000. Repayment terms can be as long as seven years. Interest rates range from 2.4% to 6.75% depending on the length and size of the loan and your credit history.
  • Balboa Capital: The lender requires borrowers to be in business for a minimum of a year, have a moderate credit score and earn $100,000 in annual revenue. Balboa Capital offers same-day funding of up to $250,000, an online application process, and it doesn't require collateral. It also has flexible term lengths and fixed monthly payments.
  • Farm Credit Mid-America: This lender offers a variety of loans for farmers and ranchers, including farm equipment loans. It offers loans as small as $1,000 and doesn't cap the loan size at a specific limit. For loans of $75,000 or less, you can apply directly on its website. Farm Credit Mid-America offers short-term loans and lines of credit for farm equipment.

Farm loan FAQs

What types of farm equipment are eligible for farm loans?  

Farm equipment loans run the gambit from farmland to tractor-trailers. Wilkinson said loans can be used for any equipment you need to operate a farm or ranch. Balboa Capital, said Wilkinson, gets a lot of requests for farm irrigation and water dispersing equipment. Other popular products farmers borrow money for include equipment to lay seeds, fertilize the soil and maintain crops.  

What documents are required for farm loans?

Depending on the lender you work with, you may be required to provide reams of documentation or financial information for the past two years.  

A USDA loan requires you to provide the following documentation:

  • A business plan detailing your operations now and into the future
  • Three-year financial history
  • Three-year production history
  • Current creditors
  • A balance sheet
  • Your projected actual income and expenses
  • Description of your farm training and experience
  • Tax returns for the past three years
  • Leases and contracts
  • Environmental compliance

A loan from an alternative lender requires you to provide the following documentation:

  • Government-issued ID
  • Bank statement
  • Tax returns
  • Business financial statements
  • Federal tax ID number

What are the term lengths for farm equipment loans?  

Farm equipment loans tend to have short terms. You can typically finance the purchase of farm or ranch equipment for as little as 12 months to as long as seven years.

Who is eligible for an agriculture loan?

Agriculture loans are designated for farmers who are starting out and those who have an existing farm or ranch. There are loans available for struggling farmers and those who are historically underrepresented in the industry. Your credit profile and financial performance will determine which loans you're eligible for and the interest rate you will pay. The higher your credit score, the less it typically costs you to finance the purchase of farm equipment.

Can you get farm equipment financing if your credit score is low?

Many alternative lenders consider factors other than your credit score when reviewing your application. If you are turned down, USDA farm loans are a great option. The USDA is designed to be a lender of last resort; they require you to apply elsewhere for a loan first before turning to the agency for assistance. These loans offer low interest rates and flexible terms, but there is a lot of paperwork involved when applying for these loans. With a USDA farm equipment loan, you must provide a detailed business report, which isn't a requirement with some alternative lenders and captive finance companies.

Image Credit: Jevtic / Getty Images
Donna Fuscaldo
Donna Fuscaldo
business.com Staff
See Donna Fuscaldo's Profile
Donna Fuscaldo is a senior finance writer at business.com and has more than two decades of experience writing about business borrowing, funding, and investing for publications including the Wall Street Journal, Dow Jones Newswires, Bankrate, Investopedia, Motley Fool, and Foxbusiness.com. Most recently she was a senior contributor at Forbes covering the intersection of money and technology before joining business.com. Donna has carved out a name for herself in the finance and small business markets, writing hundreds of business articles offering advice, insightful analysis, and groundbreaking coverage. Her areas of focus at business.com include business loans, accounting, and retirement benefits.