Refinancing equipment is a no-brainer when
interest rates hover at historic lows, like they did at the height of the COVID-19
pandemic. But today’s environment tells a different story.
“With higher rates and rising equipment costs
from manufacturers, producers are taking a more strategic approach,” says Nick
Johnson, AgDirect territory manager in Oklahoma, northern Texas and New Mexico.
“They're looking at multiple options, focusing on how to manage cash flow."
"The goal, especially now, is to time
payments to match when cash is coming in and stretch terms where it makes
sense, freeing up working capital,” he says. “It's a balancing act – keeping
operations running while managing significantly higher payments on the same
piece of equipment than they would have seen three to four years ago."
The right time to refinance
The widening gap between input costs and
producers’ net income continues to put pressure on every financial decision,
including refinancing.
“If a producer isn’t planning to trade soon and
can lower their payment through refinancing, it’s worth considering,” says
Johnson. “But timing depends on each operation’s situation. Some producers are
feeling the crunch more than others and may need to act sooner to maintain cash
flow.”
Refinancing
can be helpful in situations where a producer is dealing with cash flow
challenges, responding to shifting commodity prices, or recovering from adverse
weather. In some cases, operations didn’t make enough to cover payments last
year, but they’re in a strong equity position. That equity can be leveraged
through refinancing to unlock working capital and help carry the operation
through the next crop cycle. While it’s not a magic fix, refinancing can be a
strategic option for navigating a down market and strengthening an operation’s
overall financial position.
“Most
of what we’re seeing is driven by upcoming payments and a need to preserve
cash,” Johnson explains. “Some producers are just a few payments away from
owning their equipment outright, but they need to free up funds now.
Refinancing gives them breathing room while protecting their equity.”
Refinancing activity spiked late last year and
has remained steady since. And according to Johnson, that momentum isn’t likely
to slow down anytime soon.
“It’s hard to predict where rates will go, but
I believe we’ll continue to see more refinancing, especially as producers look
to create some financial cushion,” he says. “For example, if someone paid cash
for equipment, they may start looking at terming out those purchases to help
cover operating costs. They may still pay it off early, but it gives them
flexibility during the current season when cash flow matters most.”
Steps for refinancing
In a changing rate environment, there’s value
in exploring refinancing options and understanding their impact before pressure
builds to make quick decisions.
“Start the conversation early,” Johnson
recommends. “Call your local dealer, AgDirect territory manager or reach out to
our inside sales team. We’ll run the numbers for free – it doesn’t cost
anything to explore your options. What’s important is not waiting until you're
in a bind. Being proactive can make a big difference.”
Conversations about refinancing often start at
the dealership, and with AgDirect, the process is simple. A payoff letter and a quick online application
handled directly by your dealer through the AgDirect portal are all that is
needed to get started.
AgDirect also offers a direct-to-customer
online application. This platform gives producers a convenient way to explore
refinancing on their own terms – whether working through a dealership, a
private party or an auction.
“A few years ago, we launched a customer-facing
online application and it’s been a game-changer,” says Johnson. “It’s quick,
simple and has opened the door for producers who prefer to work with us
directly. Parameters like the 80% loan-to-value on refinances still apply, but
the convenience and flexibility of our online tools also extend to private
party and auction deals.”
Refinancing is more than a response to interest
rates – it’s a strategic tool for managing risk, improving cash flow and
adapting to changing conditions. For many producers, it’s a way to stay
financially agile and prepare for what’s ahead.
“AgDirect is built to be fast, flexible, and
easy to work with – and that matters more than ever in today’s environment,”
Johnson adds. “Whether through the dealership or online, we’re here to support
producers however they choose to work with us.”
Interested
in refinancing your farm equipment? Start by comparing your
potential savings using AgDirect’s easy-to-use online payment calculator.
Apply online, check rates,
quote payments and compare options at agdirect.com or
use the free AgDirect Mobile app available for download from the App
Store and Google
Play*.
Learn more about AgDirect equipment financing by locating the nearest
AgDirect territory manager or contact the AgDirect financing
team at 888-525-9805.
*Your mobile carrier’s
messaging data rates apply. The App Store is a service mark of Apple, Inc.
Google Play is a trademark of Google, Inc.