Making an investment in the farm is an investment for the future of the operation. Farm investments often include adding a permanent structure, investing in land, or equipment purchases. Making these types of investments can need to include a financial lender. Finding the right lender for the purchase can make or break the ROI on the investment.
ETS talked with two lenders that are commonly used by SoilWarrior owners to finance their SoilWarrior. Tate Moser from AgDirect and Gabe Jarnot from Northland Capital give valuable advice about working with a lender for agriculture equipment.
Q: To finance or not? How can a farmer navigate those waters?
A: First would be to look at your Working Capital Ratio. This would be the amount of cash (or current assets that can be converted to cash within the next 12 months) that will cover your expenses over the next 12 months. Typically, lenders like to see at least $1.10 of working capital to every $1.00 of debt due over the next 12 months.
Look at your Leverage Ratio. Will adding more debt put you in an unfavorable leverage position for your operating lender? A favorable leverage position would be your Total Assets >50% of your Total Liabilities. - Gabe Jarnot, Northland Capital
Q: What homework should a farmer do before looking for financing options?
A: Be able to articulate and show how equipment acquisition will improve their business. For example: increase in production capacity; labor & input cost savings; efficiency. Often times the equipment supplier will help provide an ROI scenario. Determine a budget payment. This will help a lender know what type of term would be needed to meet that budget. Know how they want to treat this acquisition on their books and for tax purposes. - Gabe Jarnot, Northland Capital
Q: What else should a farmer be asking their lender besides the common questions such as terms, down payment and interest rates?
A: Are there any penalties associated with paying off your note early? Are there any other conditions associated with your approval? What other potential fees can be incurred with financing equipment? - Tate Moser, AgDirect
Q: What does the word "terms" mean? What should farmers pay close attention to?
A: Terms refer not only to down payments, length of the financing agreement, and interest rates. The fine print of an agreement is often called Terms and Conditions, and this can be where there are differences between lenders. Things such as insurance requirements, will the lender file a blanket lien or will they file a UCC only on the asset financed?
One other important item that is difficult to put value on when considering financing terms is the overall customer experience with a potential lender. How accessible and responsive are they once you arranged and finalized financing? Will they work with you in unexpected situations? - Gabe Jarnot, Northland Capital
Q: Financing a strip-till unit. Is that different than other equipment?
A: Strip till equipment is a little more specialized versus say a trailer, tractor, or standard tillage equipment. It helps to work with a lender that is familiar with the equipment and understands the value that it can bring to the operation. Lenders that are not familiar with the equipment or do not have a lot of experience with financing strip-till equipment sometimes struggle with valuations. - Gabe Jarnot, Northland Capital
Q: Any benefits to having your financer understand unconventional practices?
A: Absolutely! Productivity is vital in any operation! If there is an unconventional practice that adds to the success of the producer, so be it! The same can be said regarding their loan officer or finance company. Understanding all industry practices can only help the producer and loan officer relationship! - Tate Moser, AgDirect
Q: If you had to pick one thing you want everyone to know about financing farm equipment, what would it be and why?
A: Chose a lender who understands agriculture and has a proven track record of serving producers. Your “customer experience” is what is most important! - Tate Moser, AgDirect
A: A balanced approach for equipment acquisition. Farming is a very capital-intensive business and investment in equipment that will improve the operation is critical. Determine when and how you want to use your cash. Is it better to buy equipment with cash or balance it with some financing to keep more cash on hand for unexpected expenses or other opportunities? - Gabe Jarnot, Northland Capital
Ready to talk to a lender? Check out the most frequent lenders SoilWarrior owners use.
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