Agricultural finance is a type of financial service that is designed for entrepreneurs in the agricultural industry. This includes producers, processors, and traders. Under this division, agri equipment finance is one funding instrument amongst many that help support the sustainable growth of businesses across the agricultural supply chain.
The nature of farming involves a lot of risk. The farmer finds themself at the mercy of nature – weather, drought, pests or outbreaks of disease – but still need to make their enterprises profitable. What’s more, they spend vast amounts of money throughout the year for a single harvest or livestock sale that has to fund the following year’s expenses. This places immense strain on cash flow, too. For small-scale or even emerging farmers, the need for cash flow is felt even more tightly; they are essentially starting from scratch and need to build their savings as well as a rapport with a lender.
This article explores the key aspects of agricultural equipment finance.
Funding Agricultural Equipment Purchases
As mentioned before, agri equipment finance is one element under a larger umbrella of financing instruments. Equipment funding is essentially the same as asset financing, but the emphasis is placed on what it helps businesses achieve: To acquire equipment for their agricultural enterprises.
With this type of financing, South African farmers can access modern farming technology, which would otherwise be unaffordable. Especially in the context of global competition and sustainability, farmers need innovative equipment to help them farm more efficiently and profitably. Financing breaks down financial barriers, enabling enhanced crop yields, streamlined operations, and reduced environmental impacts, such as lower carbon emissions, less wastage and greener practices.
Modern Equipment for Agriculture in South Africa
The agricultural sector in South Africa has been keeping its finger on the pulse of innovation for years. The technologies used might not be common knowledge for every farmer, let alone non-farmers, but that doesn’t mean these technologies aren’t available in the country. In fact, you can easily find them at various agricultural expos.
Yet, some new entrepreneurs or emerging farmers who haven’t been able to introduce these to their farms find them useful and novel.
The use of GPS-driven tractors and automated irrigation systems, for instance, enhances precision in farming operations that has a far-reaching impact when it comes to your wallet. But acquiring these means you need money to eventually save money.
It’s the same old story: You have to have money to make money.
Enter Agri Equipment Financing
Assets take many forms when you are on a farm. Yes, it is the tractors and harvesters, but also the trailers, irrigation systems, trucks, implements such as disc harrows, rippers, mowers or rakes, and crop sprayers. But it also includes:
- Planters,
- Silos,
- Solar,
- Agricultural netting,
- Tunnels and greenhouses
- Security fencing,
- Greenhouses,
- Packing equipment,
- Conveyors or scales,
- Forklifts
Funding obtained for these assets can be used to acquire, rent, or lease essential, movable equipment. Equipment financing usually has flexible repayment terms that fit the various agricultural cycles for different agricultural operations.
Depending on the alternative funder you approach, you are able to acquire off-balance sheet options or borrow against other assets. Payment protection is anywhere from 12 months to 5 years.
It is also worth noting that financing your agricultural equipment doesn’t always mean that the equipment is brand new. You can identify second-hand machinery and equipment and obtain funding for it. However, ensure you speak to your lender first, because not all lenders finance pre-owned assets.
Benefits of Agricultural Equipment Finance
There are several benefits to using agricultural equipment:
Improved Cash Flow: Loan payback occurs over a period of time, not just a one-time cost. This means that the supplier selling you the equipment is getting paid, and you receive the equipment, but you don’t have to fork out a lot of cash all at once.
Technological Advancement: Farmers are able to have access to the latest agricultural advancements without being held back by cash flow.
Customised Payment Schedules: Flexible repayments mean that you choose a term that works for you, and the minimum amount that works for you. This allows your agri business to grow and pay back loans without breaking the bank.
Where to Obtain Agricultural Equipment Financing
Farmers or agro-processors who are looking to fund their agricultural equipment have a few institutions to turn to.
The Agri-Industrial Fund
The Agri-Industrial Fund is a blended finance programme specifically to support high-impact black-owned large-scale commercial agricultural projects in agro-processing. It intends to address financing constraints for farmers; however, this isn’t limited to asset financing. The grant can be used for various business expenses.
Equipment Finance
This business specialises in asset finance. From construction and mining to telecommunications and agriculture, Equipment Finance solves the need to fund equipment purchases.
It creates custom financial plans that align with your cash flow, seasonal cycles, and growth plans, while offering competitive interest rates.
Ithala Development Finance Corporation (IDFC)
Ithala Development Finance Corporation (IDFC) is a development finance agency wholly owned by the province of KwaZulu-Natal. It exists to o mobilise financial resources and to provide financial and supportive services to the people of KwaZulu-Natal.
For agricultural SMMEs, it provides a funding solution, namely asset-based finance. It is a medium to long-term product targeted at SMMEs and Co-operatives wanting to purchasing moveable assets required by the business.
The only downside to funding through Ithala is that it is a product that requires the borrower to live in a set geographical area. The product defines that all assets purchased through this tool are used for generating an income.
Merchant West
Merchant West is one of the largest privately-owned providers of specialised financial solutions. They provide funding to a wide array of industries, including agriculture, logistics and transport, and manufacturing – an important point for agro-processors.
What might be of particular interest to farmers is that they offer asset financing for both new and secondhand equipment. This means that farmers are able to lower the cost even further when investing in new technologies.
