As a farmer, the time will come when you need to purchase new equipment for your farm. These can be costly, especially if you do not have the budget for expensive equipment. Fortunately, there are financing options for farmers who need to purchase new farming implements or other necessities on your farm. Below is a simple guide on how to apply for finance for your farm equipment.
Assess your current situation
The very first step you should take when looking to finance your farming implements is to assess your current business and financial situation. You should also look at how your current farm machinery is performing and whether or not it is necessary to replace certain pieces or if repairing them as a whole is a more cost-effective route to take.
Be sure to factor in the cost of fuel and contractors when looking at financing your equipment, as these costs will add to your monthly equipment expenses. Assessing your current situation will also help to determine how much budget will be required for any extra machinery that may be needed further down the line.
Have a business plan in place
An important part of applying for any equipment finance is to have a business plan in place for the bank. Your business plan should be updated to fit your farm’s current operation and should be concise and include an evaluation of the strengths, weaknesses, opportunities and risks that may apply.
It should also take into account the approximate times for your equipment to repaired or replaced, if you are not leasing it from a supplier. Include an outline for any business restructures which could take place on your farm which could impact any farming equipment you are purchasing or leasing.
Know your credit score
As with any loan, the bank will look at your credit history when you apply for agricultural finance for your equipment. You can look online for a free credit score provider and once you know what your score is, you can contact the credit bureau to discuss any discrepancies or inaccuracies.
Once these are rectified, you can explain your credit score to the bank. If you do have your credit checked before you send in your application, this does not mean that your bank will not check, simply that you will be better prepared for any questions relating to your credit score. As a commercial farm, both your personal credit history and the credit history of your operation will be checked for your loan application.
Consider which options suit you best
There is a variety of farm equipment finance on offer for those who need it, namely:
- Asset finance: This type of financing makes it easier for you to buy assets in a manner that makes managing cash flow easier. You are able to use asset finance for agricultural equipment. The company borrowing the funds must provide the lender with a security interest in the assets.
- Instalment finance: Instalment finance is a form of a medium-term loan, wherein the goods that you purchase are used as the main security for the loan. This means that the equipment that you purchase is the property of the bank until you repay the loan.
- Emerging farmer finance: Emerging farmer finance is specially aimed at SMEs and startup farms which battle to gain access to the financial aid that they need. You can use this finance for equipment and other necessary farm material and items.
When considering these options, think about whether or not owning the asset is important to you or if you prefer that the asset return to the bank at the end of your loan agreement. You will also need to consider if you would prefer the asset to appear on or off your balance sheet.
Ask for advice from experts
If you feel as though you are floundering in your current situation, then you should ask for farming finance advice from a professional. An asset finance specialist will be able to assess your situation and provide you with sound advice on how to proceed and what loan option is best for you.
These experts will be able to take the strain off of you, doing the calculations and even helping in the application process too. They will also be able to source the equipment for you as well, once you have decided on the type of loan you would prefer. Asking a professional for help will alleviate the stress and make the process easier and more efficient.
One of the most important things to remember with any sort of finance is to always monitor your monthly budget. This will enable you to keep on track with your repayments and to ensure that your farm is in good running order financially. As an established farmer, you may have a keen eye on your outgoings and income, but it always pays to keep an eye on market changes especially if external factors come into play.