Managing Volatile Times: Stay Prepared for Financing Approval and Timeframes
In some cases, getting the most out of your farm machinery lineup depends on timing: Getting the right financing deal at the right time can sometimes make a major difference in overall costs and return on investment (ROI).
That makes it important to be prepared for any potential purchase that can maximize your machinery's ROI by preparing all documentation and paperwork necessary to procure financing, according to AgDirect Territory Manager Jill Beck. That’s especially true for big-ticket purchases, and in other specific circumstances.
"If you have good credit, a purchase under $300,000 should be quick and easy. If your credit is less than perfect, or if making a large purchase, be prepared to have your financials all in order," Beck says. "The biggest thing I see happening is when producers have multiple business entities, they have to be prepared to provide the financials for all their business entities."
Planning for your operation
While some producers do so because of the federal farm program and others do so for tax purposes, Beck says it's important to understand the financing implications of operating under multiple business units. Doing so can have a direct impact on financing approval.
"Sometimes, it may seem like a great idea for tax purposes and not just for government programs. But, when you’re showing no income or a loss on all entities, and your balance sheet is showing it’s really tight, how can I say I want to loan you half a million dollars? Do you want to give somebody half a million dollars and on paper they don’t own anything?" Beck says. "At some point, you have to be viable on paper to go through the financing process."
The amount of financing you're seeking often dictates how long the approval process takes, as well as how much documentation is required. Preparing for that process should take into account both the total amount and the complexity of business organization.
"Once you get to around $1 million, most financial institutions will look at three years of taxes and balance sheets. Depending on the complexity of your operation, it shouldn’t take much more than a couple of days," Beck says. "If you have multiple business entities, be patient and prepared to answer a lot of questions about how money flows from one entity to another."
Navigating today's financing environment
Questions preceding a secured financing agreement may be more common today than before the downturn in grain market prices a few years ago. Though it's not necessarily a commentary on the financial health of a farm business, how producers have managed equity during the downturn may be the cause of more questions from a lending institution.
"As commodity prices have gone down the last few years, a lot of farmers have used up equity in different ways," Beck says. "That can sometimes lead to more questions and make some financing decisions more difficult."
Ultimately, it's important when financing a machinery purchase to understand any financial institution has regulations to follow, and every decision is made to follow those rules.
"Trust is a big thing with farmers, and they feel like everyone can trust them. And, oftentimes, they're right. It's not that a lender doesn't trust you, but they always have to satisfy some kind of regulation. All financial institutions do," Beck says. "They want to say yes, but they need to have the right documentation and records to be able to do so."
Your machinery financing partner
At AgDirect, we have financing options for purchases at the dealership, whether lease or outright sale. We’re dedicated to agriculture and offer many financing options to fit any operation, whether buying used or new machinery. We offer financing for buying, leasing or refinancing, with fixed- and variable-rate terms from two to seven years. We also offer delayed payment plans with no prepayment penalties.
Want to learn more? Contact your nearest AgDirect representative!