How to Approach Financing for a Tractor

Every agricultural business faces the tough decision of which tractor to buy and how to afford it. Purchasing a tractor is a big investment, but it is likely one that will advance your operation in a huge way. PrairieLand Partners, located throughout Kansas, strives to be a resource for our customers, so we have put together a list of resources that can help you decide on financing options. 

Evaluate Your Current Standings

Before you commit to a financing package or another farm loan, you need to know exactly where you currently stand financially as a business. If you already own equipment, evaluate their performance and how frequently you are needing to complete repairs. Consider the input costs of your current machinery, such as fuel and labor, so you have a strong foundation leading into the purchase of new equipment.

You should also factor in your ROCE, return on capital employed. This refers to the profitability of your business and can allow you to get a good comparison of your operation’s performance compared to others. This measurement can then be used to better understand how efficient your current assets are and how valuable an upgraded finance agreement might be. 

Update Your Business Plan 

As you begin planning to invest in a new tractor, you should account for it in an updated business plan. Having a solid plan in place will appeal to potential lenders. You should include an estimate of repairs, replacements, equipment depreciation, and potential restructuring of your business. Knowing these factors will set you up for success as you plan for financing. 

What are Your Funding Options?

You already know you have to work to make a dollar, but do you know what financing options are available to you? You have flexibility in your purchase. There are packages that allow lease agreements, rental equipment, and hire purchase agreements. You should have an idea whether or not you have the choice of a large down payment, renting instead of owning, or a set lease agreement for a specific tractor. 

If you are uncertain which option would be best for you and your operation, you should reach out to industry professionals who can discuss specific asset finance and farm machinery financing options for your situation. PrairieLand Partners, for example, has a great financial department and our team would be happy to help!

Continue to Monitor Your Progress

Once you have determined a finance option that works for you, it is critical that you continue monitoring your situation. Pay attention to your budget, income and expenses. This should not be too big of a concern if you took all of the correct precautions before committing to a financing plan, and likely this is something you are very focused on anyway. It is also important to note that more established operations may have an easier time managing a budget compared to a newer operation. 

Taking the next step in your operation by financing a tractor is an exciting and scary process, but hopefully these ideas helped. Our PrairieLand Partners team would love to assist you in this process! We are located throughout the state of Kansas.