Farm equipment loan is very important if you own a farm because before harvesting and earning revenue you have to invest in the equipment. Financing of agricultural equipment is quite popular and thus, good and bad lenders.
Fortunately, there are 8 highly robust farm equipment lenders, each with different facilities to meet the unique requirements of your farm. So you have to finance used agricultural equipment whether you are working on bad credit, both of you have to fund, or you do not have a big loan from farm equipment.
What is a Farm Equipment Loan?
A farm equipment loan is a small business loan that provide farms with the financing they need to purchase farm equipment. Once a farm uses the proceeds of farm equipment financing to purchase the equipment they need, that equipment will function as collateral for the very loan used to purchase it.
Because the equipment is the most necessary yet the most costly part of a thriving agricultural business, farm equipment loans can often be the difference between a farm’s success and failure.
Beyond even deciding whether or not to take on debt in the form of a farm equipment loan, though, is the decision of where to get that farm equipment loan from. The lender you choose will determine the loan amount, interest rates, and repayment terms that come attached to your farm equipment financing.
Here are the best sources of farm equipment financing:
USDA Direct Operating Loans
USDA Operating Microloans
USDA Guaranteed Operating Loans
Farm Bureau Bank
USDA Direct Operating Loans
Some of the best farm equipment loan interest rates will come from USDA business loans that the government department provides through their Farm Service Agency. And the first, most straightforward option is the Direct Operating Loan.
USDA FSA Direct Operating Loans can go towards many of the costs that come with running a farm, like fuel, insurance, and family living expenses to name a few. Most importantly for us, of course, is that they can cover farm equipment purchases.
And when Direct Operating Loans are put towards farm equipment financing, they can have repayment terms of up to seven years long, whereas other loan uses can only merit repayment terms of up to a year.
This kind of farm equipment loan can offer as much capital as $300,000 and won’t require a down payment. Interest rates for these farm equipment loans are currently 3.75%, though they’re calculated, updated, and posted on a monthly basis.
USDA Operating Microloans
Small farm equipment loans are also available through the USDA Farm Service Agency. USDA Operating Microloans will function much like USDA Direct Operating Loans, but they’ll be much smaller and, as a result, more accessible.
These farm equipment loans provide operational funding of up to $50,000. They’re repaid within 12 months or (and this is key) when the agricultural commodities in question are sold.
I.e. when you harvest and your farm takes in revenue. And even though these loans will be much smaller than Direct Operating Loans, they’ll carry the same low-interest rate, which means more money saved.
These farm equipment loans require that you have three years of farm experience out of the past 10 years, but one of those years can be substituted with related experiences like business management or military leadership.
For these farm equipment loans, you’ll also need to be able to provide farm property worth at least 100% of the microloan to act as collateral, and you’ll need to “have a satisfactory history of meeting credit obligations.”
Farm equipment loans are also available through the USDA’s Guaranteed Loan Program. Again, the Operating Loan within this program will be the financing option that can be put towards purchasing equipment.
Farm equipment loan rates for this financing option will be negotiated between the lender and the borrower: Because the USDA won’t be doing any direct lending—only providing partial guarantees—through this program, they don’t determine the repayment terms. Nonetheless, the USDA does note that Guaranteed Operating Loans are typically repaid within seven years.
Farm equipment loans through this program can be as large as $1,750,000, and the USDA provides guarantees of up to 95% of the principal and interest debt that a borrower takes on through this program.
Eligibility requirements will depend on which lender you end up working with, but you can get in touch with your local FSA Farm Loan Term to get a better idea of which lenders—and what requirements they look for—that the USDA Guaranteed Loan Program works with.
Farm equipment loans from Farm Bureau Bank can provide up to 90% new farm equipment financing and up to 85% used farm equipment financing. For both new and used farm equipment, loans can have repayment terms as long as seven years.
If you’re looking for equipment financing with less frequent scheduled payments, then Farm Bureau Bank could be your best bet: They offer monthly, quarterly, semi-annual, and even annual payments for their farm equipment financing product.
Keep in mind, though—Farm Bureau Bank might require you to provide a down payment for their equipment financing. Plus, they’ll ask for a solid amount of documentation for their underwriting process.
To apply for a farm equipment loan of $100,000 to $149,000, you’ll need to provide one year of financial statements, which will include personal tax returns, business tax returns, a Personal Financial Statement, and a debt schedule. For a farm equipment loan of $150,000 or more, you’ll have to provide two years worth of these documents.
AgDirect Farm Equipment Loans
Providing farm equipment loans on behalf of Farm Credit associations, AgDirect offers some of the most farm-friendly equipment loans in the industry.
If you can picture a kind of farm equipment financing, then AgDirect probably provides it. They offer farm equipment loans and leases specialized for a dealership, auction, and private-party purchases.
Their farm equipment loans for dealership purchases start at $5,000 and have no upper limit. They can have repayment terms of up to seven years long for typical farm equipment and of up to 10 years long for pivots.
Meanwhile, their farm equipment loans for auction and private-party purchases start at $10,000 and also have no pre-set upper limit. They’ll only offer repayment terms of up to five years.
Farm equipment loans from AgDirect, no matter what kind of purchase they’re meant for, won’t have prepayment penalties, which means you’ll be able to save on avoided interest if you’re able to pay down your debt ahead of schedule.
Balboa Capital Farm Equipment Loans
Though farm equipment financing companies that specialize in financing farms are available, you should also consider looking into more general equipment financing companies for your farm equipment loan needs.
Because they offer some of the best equipment financing rates on the market, Balboa Capital should definitely be on your short list of potential farm equipment loan sources. They offer up to $500,000 in farm equipment financing with loan repayment terms of two to five years.
Plus, rates attached to their loans can get as low as 3.99%, which can compete with the farm equipment loan interest rates that the USDA offers. Plus, Balboa Capital offers a corporation-only guarantee option for their equipment financing if you’re hoping to avoid a personal guarantee on your farm equipment loan.
To be eligible for an equipment loan from Balboa Capital, you and your farm will need to check off the following boxes.
$100,000 in annual revenue
600 personal credit score
At least a year in business
At least three open trade lines
And if you’re able to move fast and qualify for a farm equipment loan from Balboa Capital, they can fund your application as quickly as the same day.
Crest Capital Farm Equipment Loans
Another option to consider beyond farm-specific equipment financing companies? Crest Capital. Crest Capital is one of the most well-regarded equipment financing companies in the industry, and they often help agricultural businesses with their equipment financing needs.
Farm equipment loans from Crest Capital can be as large as $1 million with repayment terms from two to seven years and rates as low as 5%.
Plus, Crest Capital provides a wide array of forms of equipment financing that you can choose from. Beyond just being able to finance both new and used farm equipment, Crest Capital offers equipment loan agreements like:
Equipment financing agreement (EFA)
$1 purchase agreement
10% purchase option
Fair market value
Guaranteed purchase agreement
To be eligible for farm equipment financing from this company, you and your farm will need to come to the table with the following credentials:
650 personal credit
At least two years in business
Keep in mind though: Even if Crest Capital doesn’t name a minimum annual revenue requirement, your application will only be stronger with substantial revenues.
Farm Equipment Financing From Manufacturers
Perhaps you want to go straight to the source for farm equipment financing. In which case, you should consider seeking farm equipment financing from the manufacturer who made the farm equipment you need to purchase.
Huge corporations like John Deere offer equipment financing on their own products, so ask your dealership whether or not this is an option for you.
Farm Equipment Financing if You’re Not Getting Dealer or Bank Financing
If you’re not using a bank or your dealer, you’ll probably use an equipment leasing company. Equipment leasing companies usually offer two types of financing.
These is an equipment loan (you make the payments for 2-5 years, and own the equipment at the end for a final payment of $1) and an equipment lease (you make the payments for 2-5 years, and at the end you can walk away or choose to purchase the equipment for a final payment of 10% of the original purchase price).
Equipment leasing companies are a good fit if one of the following is true:
You are new in business
You don’t have perfect credit
You are buying equipment that is more than ten years old
You got turned down for bank financing and aren’t going through the dealer
You may notice all the scenarios where an equipment leasing company is a better fit than the bank or the dealer qualify as sounding a little bit riskier for the finance company than the situations where it’s an established company with great credit buying new equipment.
That’s because they are riskier, so the rates are significantly higher. How much higher goes from a little bit higher to quite a bit higher, depending on the situation.