In a perfect world, no one would need finance. This would either be because everything was free or because nobody bought anything unless they had the capital in the bank.
Of course, this isn’t a realistic dream, they say money makes the world go round for a good reason. The simple truth is that farms cost large sums of money to run. Running costs can be tens of thousands of dollars per year, including seed purchases, fertilizer, labor, irrigation systems, and handling the harvest.
Alongside these costs, the farm will need several pieces of farming equipment, including a tractor. These are significant investments. Most farmers can’t afford to purchase farming equipment outright, finance is the only option.
Traditional Operating Lines
This is effectively a revolving debt, in part like a glorified overdraft. The farmer agrees to an amount of credit they can access with the lender. They can then use this amount partially or in one go. Every time they use the capital they will be charged interest by the finance provider. It’s a simple way to ensure the funds are always available for the basic bills.
In short, the revolving credit system should always ensure you have cash on hand.
In contrast, farm equipment finance means borrowing the amount you need for a specific piece of equipment. You’ll then have to repay the finance according to the agreed terms. This will be a set amount over a defined period.
Undertaking finance for your farm equipment makes you more like a cash buyer, this will make it easier for you to negotiate a discount with whoever is selling the equipment. Taking out farm equipment finance also ensures you know exactly what needs to be repaid on a monthly basis. This makes it easier for you to meet the payments and structure the finances for your farm.
Set Rate of Interest
The added advantage of finance instead of traditional operating lines is that your interest rate will be set. Traditional operating lines have a variable credit rate depending on the amount of credit you’re using and for how long you’re using it. Finance takes away this uncertainty and is often substantially cheaper than the traditional method.
Of course, using farm equipment finance also ensures that you can access lease agreements on your farming equipment. This opens up a world of options, including the ability to replace and renew equipment regularly. It prevents your farming equipment from becoming obsolete.
Maintains operating lines
Additionally, using finance leaves your traditional operating lines free, making sure they are available to cover the expense of the day-to-day running of the farm.
Finally, you’ll find that financing your faring equipment allows you to claim tax back through the lease agreement. This can reduce the amount of tax you owe each year, effectively saving you money while giving you the very latest farming equipment.
If you haven’t considered financing your farm equipment before, it’s time you did.