New paint fever? Read contract before signing

SALEM, Ohio — Before you sign on that dotted line at the Farm Science Review for that new piece of equipment, do some research and make sure you are getting the best deal.

Shop around

Producers are urged to research any equipment they are considering purchasing to ensure they get the best price, and then start shopping around for the best financing available.

Duane Maciejewski, vice president of Ag Direct for Farm Credit Services, said farmers compare tractor to tractor to make sure they are getting the best deal. They compare horsepower and features to get the biggest buy for their dollar, but they should always go a step farther and compare financing options.

Terms are the key

The question is not who will provide the financing — whether it is an equipment company, agricultural lender or traditional bank — but who provides the best terms for your operation.

Maciejewski said too many farmers are in a hurry and don’t read the agreements they sign. Check out all of the financing available. Read through the terms and compare the agreements before signing.

“Stop, take a second and read the papers before signing,” said Maciejewski.

Cash flow

Producers must also think about their cash flow before financing anything. Consider whether annual, quarterly or monthly payments are the best fit for the cash flow. The different payments plans have to be considered, depending on when and what the farm produces and how payments are remitted.

He said many farmers don’t consider how the payments will affect the cash flow of the business until they start paying the bill. Consider how much money it will cost every month for that payment and what will be impacted by it.

“The most important thing is to consider your budget. Beware of the budget,” Maciejewski said. “If you set your budget for so much in finance costs, then don’t go over that.”

Cheapest financing option

Maciejewski said some lenders offer different financing choices, but sometimes it has to be penciled out to figure out what is the least expensive option. He said a lender may offer zero percent financing but that doesn’t mean it is the cheapest way to go. Sometimes, it is cheaper to use the cash discount the dealer may be giving instead.

“Interest is, many times, not free. It’s just that the cost can be hidden in different ways,” said Maciejewski.

Meet the farm needs

The next suggestion Maciejewski has for farmers is to research the piece of equipment before making the purchase. Does it meet the farm’s needs and fit into the business plan? Is it the size that fits the farm, and is it affordable?

Maciejewski cautions producers about deferring taxes. He said sometimes producers purchase equipment to avoid paying taxes. The equipment may not necessarily need replaced on the farm, but the farmer is willing to make the purchase in order to save on their taxes.

“I encourage them to talk to their tax adviser before purchasing equipment if one of the main reasons for the purchase is tax deferral,” said Maciejewski.

Prepaid loans

When considering financing terms, beware of loans that can’t be prepaid. Maciejewski said it is rare for that term to be used in financing language, but it doesn’t hurt to make sure that language is not used.

He also urged farmers to check the terms of the financing against what they are financing. Don’t finance a piece of equipment for 10 years if it isn’t going to last 10 years.

“Match the terms up with the assets.”
“Again… take the time to read what you are signing,” said Maciejewski. “Understand it’s a contract you are entering.”

Do your research

Maciejewski said the most important things to do are read what you are signing and be sure the equipment is what you want.

“Take time to research the lender. Make sure it fits into the goals as a grower. Producers spend time looking what tractor they needs, so why not take the time to check out financing,” he said.

About the Author

Kristy Foster Seachrist lives in Columbiana County raising sheep and horses. She earned her degree from Youngstown State University and has worked in both print and broadcast journalism. You can follow her on Twitter at http://twitter.com/fosterk96. More Stories by Kristy Foster Seachrist

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