Five Tips for Getting a Tractor Loan with Bad Credit


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Not all of us are meant to earn our living sitting at a desk in front of a computer for hours on end. That is why millions are pursuing alternative methods to making their living or starting a business. There are also methods for making a living but many of them can require capital to get started.

One such way to earn a living is by being a farmer. Growing your own crop of fruits and vegetables and then selling them to distributors is a way that many Americans have been making a living for decades. But it isn’t as simple as planting seeds and selling crops.

There are more things required to becoming a farmer than you may have realized. One of those necessities is a tractor. This is because, to make a living as a farmer, your crops need to be significant in size. You won’t be able to live off of a hobby or backyard garden.

A tractor is necessary for tilling large plots of land so that seeds can be distributed, and those crops can be properly tended to. Without a tractor, it would be impossible to be able to do the work needed to grow crops in a huge amount.

But tractors are not inexpensive. They require a significant financial commitment for the funding that can be used to acquire the necessary equipment. Having good credit is ideal to obtain the means for acquiring the equipment needed to farm.

Farmers Have Capital Needs

The farming business in general means having flexible access to lines of credit. There is the obvious need to borrow money to buy equipment and possibly land, but there are seasonal needs as well. This can encompass restocking seeds and fertilizer, buying livestock, and the need to hire staff to help you through the busiest seasons of the year.

Not only that, there can come a time where you have a poor crop yield, a disaster occurs, or there are lower-than-expected prices. As a farmer, you need to be prepared for these issues so that you can mitigate the financial impact.

When you sell your harvest, you can begin to pay those things back. This is a business model that has been around for a long, long time, but it also means that farmers depend on credit. This is becoming a more difficult thing to find these days.

Difficult Times for Farming

It doesn’t help matters that the farming industry is going through a particularly rough stretch. Net income derived from farming has fallen almost 50% dating back to 2013 and is at its lowest point since 2009. That means that the average farm is substantially weaker financially.

Additionally, the farm sector is seeing a drastic increase in overall debt-to-income and a steep drop in working capital. This means that farms have far lower cash reserves than they have in times past. Farm loan delinquencies have also reached their highest point in nearly a decade since farmers aren’t earning enough to be able to keep up with their payments.

With tough times and difficult conditions, that has made traditional lenders a bit more reluctant to want to provide capital for farm loans. When they do approve those loans, it generally requires a bit more collateral.

So, what do you do if your credit score is less than optimal, but you need to get the financing for a new tractor for your farm? Thankfully, it isn’t the end of the world to have less than stellar credit. There are tips to be implemented that can help you to get the equipment that your farm needs.

1. Put More Money Down

This may not be the most ideal of options if you don’t have money ready for a down payment, but it is one of the best ways to secure the financing that you need to obtain a loan. When you have more money available for a down payment, you can provide assurance to the lender.

Not only that, putting more money up front means less money that needs to be borrowed. This opens the door for better interest rates and can help improve the odds that you get the remaining financing that you need for a tractor.

Lenders want to see that you have a good credit history, but they also want to see equity. The more money that you put down, the greater the equity there is in that tractor.

If you know that you will need more money for a down payment ahead of time, you can begin to save in a number of ways. Budget out what you can afford to save and how it will impact your current budget. If you have ample time to save, you will be able to cover a much larger portion of the total cost of your new tractor.

2. Buy Used

While going for a brand new tractor might be the most ideal option, it is also the more expensive option, too. If you do not have the necessary capital to buy a new tractor, getting a used option can do the job and get you going.

Used equipment tends to come at a lesser cost than new options for obvious reasons. With a new tractor, you don’t have to worry about existing wear and tear or any possible issues that could have happened with that tractor.

This is why it is important to get any possible details on a used tractor that you can. Know what you are purchasing so that you can avoid unpleasantries and avoid nasty surprises. You may not get quite the same life out of a used tractor that you would out of a new one, but it could be a more cost-effective option for keeping your farm going instead of going without a tractor.

3. Government Loans

Because the United States has been dependent on farmers for so long, they have programs available to help farmers obtain the financing they need to get the equipment they need. Thankfully, these government loans are also available to those with bad credit.

In the United States, these farm loans can be obtained through the Farm Service Agency of the United States Department of Agriculture (USDA). In this program, the agency itself guarantees a partial repayment of the loan. That means that if the borrower can’t afford to pay back the loan, the traditional lender will get at least part of their money returned to them.

Because of that guarantee, lenders may be a bit more willing to provide financing for someone that doesn’t have the best credit score. Even with this government program in place, it can still be difficult to qualify.

Credit score plays an important factor, but there are other factors to keep in mind. This includes your track record of farming (which should be 10 years or more), a potential cosigner, any collateral, and the amount of debt that you currently have in your name.

While government programs can make it possible to obtain a loan with bad credit, it doesn’t make it a guarantee. Look into all of your options before making a decision to get the best possible financing option for you.

4. Get a Co-Signer

When obtaining financing for an auto loan, one of the most common ways to combat bad credit is by having a co-signer. This is the practice of finding someone who has good to great credit and having them sign the application with you.

Keep one important thing in mind: When the co-signer signs off on the paperwork, they are making themselves as responsible for the payment of the loan as you are. This means that if you can’t make the payments or decide to stop, they will be impacted as well.

Having a co-signer is a risky proposition. Sure, it can drastically improve your chances of obtaining financing that you need for your tractor, but it can put your relationship with the co-signer at risk. If you can’t pay your bills on time, that will negatively impact the co-signer, too. This is one of the quickest ways to ruin a friendship or relationship and can cost you much more than money.

Still, having a co-signer is one of the best options to getting the financing that you need and doing so at rates that aren’t the very highest in the industry. Weigh this option carefully before making a decision as it carries a heavy burden if things go awry.

5. Put Down Collateral

While you wouldn’t traditionally be able to offer collateral for financing most auto loans, getting financing for a tractor is a much different beast. If you don’t have money to put down up front or have bad credit (or a combination of both), there is another option. Offering collateral can be just what the lender needs.

The requirements for that collateral can vary from lender to lender, so be certain to read the lender terms before agreeing to anything. Using collateral is a way to prove to the lender that you are serious about obtaining a loan for tractor financing and will give them some form of insurance against defaulting on the loan.

Be careful when putting down collateral, however. If you should fall behind on your bills or fail to pay them at all, not only will you lose the tractor that your farm needs, but you will lose the collateral that you put down. That would be an awful loss to incur.

Finding a Farming Loan

In addition to the ways outlined above, there are other ways to obtain credit. Always keep in mind that it is easier to obtain the funding that your farm needs with available capital and a good credit score. Still, you can qualify for the funding that you need even without those things.

Traditional Lenders

Even though it was covered earlier that traditional lenders are moving away from providing farming loans, that does not mean that it is impossible to obtain funding. Going through a traditional lender is still an option, but it may be less so with a traditional lender.

Generally speaking, loan standards have gotten much tougher when applying through a traditional lender. To qualify, they will want to see a list of valuable assets that can be offered as collateral, a strong credit score, and a proven track record when it comes to farming incoming.

Even worse, the lending process can take several weeks or even months to review all of your information for the loan process. This can make it the least convenient option there is and one of the most stringent to obtain a loan through.

Still, there is one benefit to working through a traditional lender. If you manage to qualify, the amount that you receive will be much higher for a long-term loan. That can be invaluable when it comes to acquiring new land or even adding new buildings to your property.

Having a below-average score can make it very difficult to qualify. It could be a good idea to delay your application if at all possible and work on improving your credit score. While it may be difficult to obtain a traditional loan, it could wind up being the best thing for your farming business.

Alternative Lenders

Of course, not everyone will have the means or the credit score to manage a traditional loan. That leaves more questions than answers. This is where using an alternative lender can come in handy and it is also the easiest way to obtain a loan while having bad credit.

These alternative lenders will base their decision mostly on whether or not your farm is bringing in enough income. If your farm earns $100,000 per year, you stand a much better chance of qualifying for a loan through an alternative lender.

Since they don’t review a long, complicated list of requirements like a traditional lender would, that means that they can process your application far quicker, usually within a few days. This can come in handy in a cash crush, like when a tractor breaks down. In instances like that, you can’t wait for months for a more traditional lender to render a decision.

The caveat here is that you aren’t going to get quite as much as you would through a traditional lender. Because these loans are faster and require less of a requirement check, you can typically only get between $5,000 and $500,000. If you need anything more than that, it could be better to wait and go through a traditional lender.

Another great thing about an alternative lender is that they are more flexible about how you can pay off your debts. If you have the means, you can often pay off your loan as soon as you choose and don’t have to worry about something such as a prepayment penalty.

If you so choose, you can even pay off the entirety of the debt as soon as your crop has been sold. That allows you to get out from under the burden of a loan in far shorter order. Besides, if you have bad credit, an alternative lender can be a great way to access the money that your business needs right now without having to jump through the hoops that a traditional lender will offer.

Explore Your Options

Because of the state of the farming industry and the impact that is being felt when it comes to obtaining traditional loans, you should always explore the possible options when it comes to loans. You may be limited to fewer options if you have a bad credit score, but that doesn’t mean that you should jump at the first one you get approval for.

You also need to be realistic about the income of your farm and any debts that your farming business carries. This will allow you to have a much more realistic idea of what type of loan you can afford each month and whether or not you will be able to pay it off in the time designated.

If you take on a loan that you cannot afford, it will just be a matter of time before you fall behind on your payments. Doing that can not only be damaging to your credit, but it can lead to repossession of your equipment, which can have a lasting negative impact on your business, too.

Getting a tractor is essential to the life of a farming business. But there are more ways out there to obtain a loan for that tractor than you may have realized. Not jumping at the first approval is important and finding the right loan for your budget is even more important.

Don’t let bad credit sink your hopes of obtaining the financing that you need. Take your time, formulate a plan, and there is likely a loan out there that can fit your needs.

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