Agriculture Finance
Last updated on May 5th, 2022 at 11:34 am by Bill Tsouvalas
Keep your agribusiness ahead of the game
Flexible agricultural loans and leases
Running any kind of agricultural business demands more than just water, sunlight, and working from dawn ‘til dusk. When your situation changes, you need access to reliable, flexible finance solutions, too – and that’s where Savvy can help. We assist farmers with buying and leasing assets, vehicles, and machinery, accessing loans for livestock, and even unlocking the value of their sales with invoice finance. Whatever your operation, no matter how small or big – our expert brokers will find the right agribusiness loans for you and then help you put one quickly in place.
Finance tailored to your agribusiness
At Savvy, we know that for farmers, timing is everything. That means having access to the equipment, labour, and machinery you need when conditions are right – not when the weather or season has changed. That’s why we’ve developed relationships with farming-specific lenders who offer fast, convenient agribusiness loans. Our brokers understand the needs of our nation’s growers and the unique challenges they face. They’ll listen hard to find out how your business works, then work just as hard to find the ideal lender and product to drive your business forward.
See how we can help you with your agriculture finance
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Agriculture finance explained
How does an asset finance lease work?
Finance Leases come with repayment options between one and five years. With a finance lease, the residual payment gets based on the length of the lease, so it’s fixed. When the lease term finishes, you can choose to purchase the equipment, machinery, or vehicle, opt for refinancing the residual amount, or for selling up and starting a new lease for brand-new machines or vehicles.
- The entire amount of repayments is tax-deductible
- Finance amounts for machines, tools, other assets, and vehicles get based on the GST-free purchase price
What is a chattel mortgage?
Chattel Mortgage finance is a very popular option with agribusiness loan customers for several reasons. It’s a low-cost finance solution because it’s a form of secured loan – so interest rates are relatively low. Chattel mortgages also offer some distinct GST advantages and run between one and seven years, depending on your requirements. Terms run between one and seven years, and the end-of-lease options are identical to a finance lease.
- The interest portion of repayments is tax-deductible
- You claim all the purchase price GST back when your next business activity statement gets filed
- There’s zero GST on repayments or any residual amount
What’s an operating lease?
An operating Lease is very similar to a long-term rental agreement in practice. Terms run between one and five years, and while they have a lot in common with finance leases, they’re different in a few ways. Operating leases are a fully maintained finance solution, meaning you don’t have the responsibility or costs for administration and servicing vehicles and machines. You can bundle as much of the insurance and maintenance as you want into your regular lease payments to the lender. Operating lease lenders also take on all the ownership and sales risks because, at the end of the agreed term, you just hand the machine or vehicle back. They’re an excellent option if you want to upgrade frequently.
- All operating lease payments are tax-deductible
- The cost of the lease gets based on the ex-GST price of the equipment
Helpful guides to agricultural finance
Buying new vs. used agricultural machinery
Keeping a farm operating requires a lot of work and a lot of capital. Buying used agricultural machinery such as tractor, may be a viable option, especially if you’re facing a bigger than expected harvest. Depreciation may occur faster, but it will get the job done. Buying new means high residual value in your asset, and lower maintenance costs as parts and machinery is factory fresh. If you decide to rotate crops or move into different commodities, you can sell for more.
Leasing equipment vs. buying
A major decision for any farmer or agribusiness manager is to lease or buy farm equipment. Buying creates an asset on the books, which can count towards your profits. You can also claim depreciation, tax and other benefits. However, if your farm or agribusiness needs more flexibility, operating or finance leases may be preferable. This gives you the opportunity to switch out existing equipment within a given time frame, so you’re always using new or near-new equipment.
Agribusiness loans – how they differ
In contrast to other types of commercial loans, Agribusiness is often dependent on seasonal income, so banks and lenders accommodate repayments when cash flow is better – around harvest time. Terms can vary from three months up to thirty years; especially when some equipment can cost six to seven figures. One can separate the loan into interest only (with a balloon payment due at term) or principal and interest, like most other loans. Some loans also come with a redraw facility.
Buying agriculture equipment after lease
Many agribusinesses lease their equipment with an operating or finance lease as it suits their aims and method of operation. However, once a lease term concludes, a farm or agribusiness has the option to buy their equipment outright, if it suits their financial position and goals. The usual method is to pay out the residual value of the equipment leased. Though this is a lump sum, your business can finance this using a variety of commercial agribusiness loan products.