Prolonged challenges facing farmers are prompting equipment dealers to explore flexible financing options to lower monthly payments and close deals.
Arranging longer loan and lease terms beyond five years is one way to ease financial strains on farmers and generate sales, Josh Gruett, general manager at Waupun, Wis.-based Waupun Equipment, told Equipment Finance News.
“I think there’s a lot of room for eight-, nine- and 10-year notes in this business to allow better cash flow with some of these high costs,” he said. “Whether it be extending out used terms or relaxing some down payment requirements, instead of 20%, going down to 10%. I’ve seen that help get over the hump for some of the captive OEM finance companies.”
Extending loan terms beyond a standard three to five years is especially beneficial for newer, high-priced equipment, Gruett said. For example, if a customer has been paying $7,500 per month but is looking to upgrade, stretching a loan out by 12 or 18 months can help keep monthly payments closer to the current payment, he said.
“The expectation isn’t that the payment has to stay the same, but the expectation is it goes from maybe $7,500 to $8,500,” he said. “If the payment goes from $7,500 to $12,000, it’s a bit too much to chew off to fit in the grower’s budget. … Very few tractors go to the salvage yard before 20 years, so I don’t think financing them up front for eight to 10 years is really a disadvantage anywhere.”
Meanwhile, Purdue University’s Ag Economy Barometer fell to 146 in June, down 12 points from an unexpected four-year high in May. The July 1 report comprised responses from about 400 farmers who were surveyed from June 9 to June 13.
The Future Expectations Index dropped 18 points to 146, and the Farm Financial Performance Index fell five points to 104.
While these indices mark an improvement from last year, crop producers continue to wrestle with low commodity prices, high interest rates and rising input costs, all of which have contributed to decreased sales of both new and used agriculture equipment so far this year.
Agriculture OEMs are continuing to offer aggressive incentives while cutting production to boost sales and right-size dealer fleets in the wake of these challenges.
Skip payments for strong borrowers
Despite a 1.2% year-over-year dip in originations through May, the equipment finance industry has shown relatively strong credit performance, with approvals reaching 77% in April and May, their highest level in two years, according to the Equipment Leasing and Finance Association.
Improving credit performance means that more farmers may be granted skip and seasonal payments, another potential boost for the sector, Derek Weaver, sales manager at Leola, Pa.-based Agriteer, told EFN.
“We do have some flexible financing options — skip payments over the winter or even first payment more than a year out if a guy has really strong credit,” he said. “It’s important that we have options like that to close deals sometimes.”
In addition, Agriteer may offer annual payments to row-crop farmers who earn much of their income during the winter, whereas monthly payments are better suited for custom farmers who have steady income year-round, Weaver said.
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