7 Common Mistakes Everyone Makes In Agriculture Equipment Finance

Modern agricultural techniques require using the latest equipment such as tractors. Not every farmer can afford to purchase modern equipment with their own money. So to help them access the equipment easily, there are agricultural machinery finance options available, just like agricultural loans. Machinery forms a crucial part of any business for its growth, and so the case for agriculture. Read on to check seven common mistakes that need to be avoided while availing of agricultural machinery finance.

7 mistakes that everyone makes while applying for agricultural machinery finance:

Following seven mistakes need to be avoided while availing agriculture equipment finance:

1. Investing in a piece of machinery when the agriculture business is not in a position to afford it:

Many businesses rely on risk and expect future earnings, and they might sometimes take up to six months to pay their debtors for completed work. In such a case, impulsively purchasing the equipment based solely on its positive effects might radically alter the agricultural potential and even lead to bankruptcy.

So, the first thing to evaluate is the profitability of the agriculture business, followed by the impact of the equipment in bringing about beneficial changes. If everything appears in order, applying for agricultural equipment financing is viable.

1. Failure to check the efficiency that the equipment can bring in the business:

Before purchasing new equipment, you need to understand how far it can assist you in enhancing the efficiency of agricultural practices and saving time and money, resulting in higher profits. Equipment cost is not an insignificant amount. Hence, you need to exercise your prudence to justify its need for the agricultural business if it doesn’t enhance cash flow and profits.

iii. Not checking if there are skilful people to operate the new equipment:

This is a serious mistake that most businesses make. Lack of skilful people to use equipment will just waste the investment. Even if the personnel know how to use the equipment, they may need to be upskilled or have their licence renewed. Training workers may necessitate greater investment and may result in a loss for a period, which should be considered when investing in new machinery.

1. Not considering equipment storage space:

Agricultural equipment like tractors needs a significant storage area. If they are not stored properly and taken care of, they might lose efficiency over time and incur additional repair expenses. So one needs to make sure there is a storage area to keep the purchased pieces of equipment safely. 

1. Overspending without weighing the importance of existing equipment:

The agriculture business may not have endless liquidity, so it is important to weigh the difference between existing equipment and the new ones. Then go for the new ones only when the latter is cost-effective and brings more cash flow. Liquidity problems are bound to happen when the available financial options and repayment potential aren’t entirely analysed.

1. Not checking affordability of line of credit and other options of saving money:

Farmers need to check if they are eligible for agricultural machinery finance or agricultural loans from agricultural finance companies. You must consider all factors to see the short-term and long-term impact. The criteria vary from one financing company to another and must be well understood.

Since the machine is a capital expense, you can write it off to reduce the tax liabilities. So it is important to keep an eye on the current tax breaks to save money. Checking with the agricultural equipment leasing companies can help you understand the best time to buy, what can be claimed, and whether leasing or purchasing is a better option.

vii. Investing without insurance:

Farmers fail to check the insurance options before purchasing new machinery or applying for agricultural loans. Insurance is a crucial protection factor against breakdown, failure, or write-offs. Now, once you know the available insurance options, check the insurance-related costs for the new equipment, its benefits for new versus existing equipment, and the loan requirements for availing insurance facility.

Conclusion:

Purchasing agricultural equipment can be expensive. It has resulted in the establishment of agricultural equipment leasing companies. Having a good understanding of the available financing alternatives and frequent mistakes made when obtaining finance for agricultural machinery will assist in avoiding them and ensuring profitability in the agricultural business.