The reason why farm equipment loan rates vary so much is due to the fact that there are different financing models in the industry today. It also largely depends on how the equipment leasing company prices their funding and targets the market.
What Are The Average Farm Equipment Loan Rates?
There are some specific guidelines that you can use to try and analyze the type of financing rate you should be paying but there are some funder specific criteria that can specifically affect lending rates.
One of the factors that affect equipment loan rates is the size of the deal. For example, if you want a deal that is less than $200, 000 you will get a lower rate than when you go for a deal that is higher in price.
A lower financing value and a slower process of funding tend to offset lower rates. For instance, if you want to get a farm equipment loan through a bank, the lowest cost of financing would be prime +3%. It is not very easy for an upcoming or a small business to qualify for that rate because you will have to go through a rigorous application process that requires you to have collateral to guarantee your loan and a very good credit score.
If you want a loan with a higher value, then you will get a slightly higher rate to offset the relative risk of the bank or the leasing company. For example, many equipment leasing companies will give clients with “A” credit leverage at 100% of the asset acquisition cost. The effective rate of borrowing will be a little higher than what you can secure at the bank.
A higher rate from a small ticket leasing company often provides quicker turnaround time and advantage as compared to the bank financing option.
So as a business owner you must consider factors such as timing, leverage and cost when comparing farm equipment loan rates.
If you are a start up or you have been in business for less than three years, or you have a damaged credit score, you will be faced with higher loan equipment rates because of the higher risk of potential loss to any equipment leasing company or lending institution that approves your application.
If you have a strong credit score or you can provide your lessor with some type of risk reduction, you can get loan rates that are lower than those normally offered by the bank.
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The type of equipment that you want to lease can also affect farm equipment loan rates. If the piece of equipment you want to lease has a large and predictable resale value, it will have a lower risk and so the loan rate will be lower.
Leasing companies also tend to give lower/higher rates to businesses in specific geographical locations.
The main point here is that there is no such thing as average farm equipment loan rates given that there are a lot of factors that affect the rates. You have to think in terms of which source of lease financing you are looking for. From there, you can get a clearer picture as to what suits your business at a given point in time.
The rate at which you lease your farm equipment is very important. There’s no doubt that the rates vary from one lender to another and they are available in a wide range. Where you are located also affects the farm equipment loan rates that you get given that some equipment leasing companies offer different rates to businesses in different geographical locations.
Low equipment rates have numerous advantages and one of them is conserving cash flow. Lease rates are normally fixed and they do not fluctuate so this makes it easier for you to make a budget.
There are various institutions where you can apply for a lease. Banks are believed to offer the lowest lease rates but most of them do not have leasing programs. Farm equipment dealers have their own leasing programs. You can also apply for a lease directly to farm equipment leasing companies that operate independently.
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