What is a farm equipment loan and how to qualify?
October 29, 2026 | Last Updated on: October 29, 2026
Looking for Business Financing?
Apply now for flexible business financing. Biz2Credit offers term loans, revenue-based financing, lines of credit, and commercial real estate loans to qualified businesses.
Set up a Biz2Credit account and apply for business financing.
Key Takeaways
A farm equipment loan funds machinery such as tractors, combines, and sprayers.
The equipment usually acts as collateral, so down payments can be lower.
Lenders review credit, time in business, farm income, and cash flow.
Bad credit can raise your costs, but it does not always mean denial.
Clear records and a written equipment quote speed up approval.
A farm equipment loan is a business financing option that helps you buy machinery for your farm or ranch and repay it over time. The equipment secures the debt, so lenders focus on your credit profile, farm income, and the machine's value. Many operators start with farm tractor financing, since a tractor is often the biggest single purchase on a farm.
Machinery is one of the largest capital costs in agriculture. A mid-size tractor can cost well over $100,000, and a large combine can top $500,000. Paying cash can drain the money you need for seed, fuel, labor, and feed. Financing spreads the cost across the years the machine earns revenue.
This article covers how the loan works, the main loan types, what lenders require, and how to prepare. It is written for farm and ranch businesses comparing their options.
What Is a Farm Equipment Loan?
A farm equipment loan is a term loan for agricultural equipment and machinery. You borrow a set amount, repay it in fixed installments, and the lender holds a lien on the equipment until you pay it off.
Key features:
Eligible equipment: Tractors, combines, balers, planters, sprayers, irrigation systems, grain bins, and trailers.
New or used: Many lenders finance both, though used machines may get shorter terms.
Loan amount: Often 80% to 100% of the purchase price.
Typical terms: Three to seven years, and longer for high-value machines.
Collateral: The equipment itself.
How a Farm Equipment Loan Works
The process is simple. Most lenders follow these steps:
Choose the equipment: Get a written quote from the dealer or seller.
Apply: Submit your loan application and financial documents.
Underwriting: The loan officer reviews your credit, income, and the equipment's value.
Offer: The lender makes the credit decision, and you receive the rate, term, and monthly payment.
Funding: The lender pays the seller, and your payments begin.
Many lenders also offer seasonal repayment schedules. These match payments to harvest income.
Benefits of a Farm Equipment Loan
Financing protects your cash for daily operations. It also helps you upgrade machinery sooner.
Preserves working capital for seed, fuel, feed, and labor.
Spreads cost over the machine's useful life.
Builds business credit through on-time payments.
May offer tax benefits; Section 179 may allow a deduction for qualifying equipment. Ask a tax professional.
Main Types of Farm Equipment Loans
Each type of farm equipment loan fits a different buyer. Match the product to your credit, timeline, and budget.
Bank and Credit Union Loans
Best for: Strong credit and established farms.
Watch for: Longer approval times and stricter documentation.
Dealer and Manufacturer Financing
Best for: Buyers who want a one-stop purchase.
Watch for: Promotional rates that may require giving up cash rebates.
Farm Tractor Loans and Specialized AG Equipment Financing
Best for: Single, high-value machine purchases.
Watch for: Larger down payment rules on older or used units.
SBA Loans
Best for: Larger purchases and long repayment terms.
Watch for: Longer processing and heavier paperwork.
USDA Farm Service Agency (FSA) Loans
Best for: Beginning, small, and underserved farmers.
Watch for: Eligibility rules and slower timelines.
Equipment Leasing
Best for: Equipment that changes fast, such as precision-ag technology.
Watch for: Hour limits and wear-and-tear charges.
Online Lenders and Alternative Financing
Best for: Speed and smaller purchases.
Watch for: Higher rates and shorter terms.
Farm Equipment Financing for Bad Credit Borrowers
Larger down payment: 10% to 20% or more can offset lender risk.
Co-signer or guarantor: A stronger borrower can improve approval odds.
Cash-flow-based lenders: Some weigh farm income more than credit score.
FSA microloans: These suit smaller purchases.
Lower-priced used equipment: A smaller loan is easier to approve.
Leasing: Some lessors accept lower scores.
Banks and agricultural credit unions often give the lowest rates to well-qualified borrowers.
Dealers and manufacturers, such as John Deere Financial, Kubota Credit, and CNH Industrial Capital, offer financing at the point of sale.
Tractors hold resale value well. Lenders often offer longer terms and competitive rates on them. Combines, balers, and planters may have their own programs.
The U.S. Small Business Administration partly guarantees SBA 7(a) and 504 loans. Both can fund equipment, and terms can reach 10 years.
The FSA offers direct and guaranteed farm operating loans that can cover equipment. Direct operating loans go up to $400,000. Microloans go up to $50,000. Confirm current limits on the FSA website.
Leasing lets you use a machine for a set period. It can cost less upfront than a farm equipment loan, but you may not own the machine at the end.
Online lenders use fast applications and flexible credit rules.
A low score narrows your choices, but it does not close every door. Consider these paths:
Expect higher rates. Compare the total cost, not only the monthly payment.
Best Farm Equipment Loans by Situation
No single product wins for every farm. Use this table as a starting point.
| Your Situation | Option to Consider | Why It Fits |
|---|---|---|
| Strong credit, established farm | Bank or credit union | Often the lowest rates |
| Buying from a dealer with promotions | Dealer financing | Convenient, with possible promotional rates |
| Large purchase, long payoff | SBA 504 or 7(a) | Longer terms, lower payments |
| New or small operation | FSA direct or microloan | Built for beginning farmers |
| Need equipment quickly | Online lender | Fast approval and funding |
| Low credit score | Larger down payment, co-signer, or lease | Offsets lender risk |
What You'll Need to Qualify for a Farm Equipment Loan
Lenders want proof that you can repay a farm equipment loan. Most review five areas.
Credit Score
Most traditional lenders prefer a good credit score. Some online lenders approve lower scores at higher rates. Lenders may check both personal and business credit.
Time in Business
Many lenders want at least one to two years of operating history. Newer farms may need a larger down payment or an FSA beginning-farmer program.
Farm Income and Cash Flow
Lenders measure your debt service coverage ratio (DSCR). Many want 1.25 or higher.
Formula: Net operating income ÷ annual debt payments.
Example: $150,000 net income ÷ $100,000 debt payments = 1.5.
Down Payment and Collateral
Down payments often range from 0% to 20%. Older or used machines usually need more. The lender will also check the equipment's age, condition, and value.
Payment example: A $100,000 tractor financed at 8% for seven years costs about $1,559 per month. Total interest is roughly $31,000. Actual interest rates vary by lender and credit profile.
Documents Lenders Request
Government ID and business registration or EIN
Two to three years of business and personal tax returns
Schedule F (Profit or Loss From Farming)
Balance sheet and income statement
Three to six months of bank statements
A schedule of current farm debts
A written equipment quote or invoice
Crop insurance and production history, if applicable
How to Prepare Your Application
A complete file gets faster decisions. Follow these steps:
Check your credit reports. Pull free reports at com and fix errors.
Define your need. Decide which machine you need and what monthly payment fits your budget.
Get a written quote. Lenders need the exact price, model, and year.
Gather documents. Use the list above and keep digital copies ready.
Build a cash flow projection. Show how the machine will raise yield or cut costs.
Compare offers. Request at least three. Ask whether the farm equipment loan has prepayment penalties.
Apply and respond fast. Answer lender questions quickly to avoid delays.
Mistakes to Avoid With a Farm Equipment Loan
Focusing only on the monthly payment instead of total cost.
Financing equipment you do not need or cannot fully use.
Skipping a tax review before you buy.
Submitting incomplete or outdated financial records.
Ignoring fees, balloon payments, and early payoff rules.
Conclusion
A farm equipment loan lets you add machinery without draining your cash. Lenders look at credit, time in business, farm income, and the equipment's value. Strong records and a clear plan improve your odds, even with a thin credit file.
Before you apply, compare each farm equipment loan offer on rate, term, and fees. Gather your documents, request multiple quotes, and speak with a tax professional. A well-prepared application can save you money and get the right machine into the field sooner.
Farm Equipment Loans Articles
First Time Farm Loan Guide: How New Farmers Can Finance Land, Equipment, and Startup Costs
Farm Loans for New Farmers: Common Mistakes That Delay Approval
Farm Financing for Equipment Purchases and Technology Upgrades
FAQs About Farm Equipment Loan
1. What credit score do I need for a farm equipment loan?
Many banks prefer a good credit score. Online and specialty lenders may approve scores in the 500s, usually with higher rates and larger down payments.
2. How does farm equipment financing bad credit approval work?
Lenders lean more on cash flow, collateral, and down payment. A co-signer, a larger down payment, or a lease can improve your chances.
3. How do farm tractor loans differ from other equipment loans?
They are built around tractor values and resale. That often means longer loan terms and better rates than for niche or older equipment.
4. What are the best farm equipment loans for new farmers?
FSA direct loans and microloans are often a strong fit. Dealer financing and SBA loans can also work if you meet the credit and time-in-business rules.
5. How long does farm tractor financing take to approve?
Online lenders may decide in one to three business days. Banks often take one to three weeks. FSA and SBA loans can take longer.
6. Can I use a farm equipment loan to buy used or old machinery?
Yes. Many lenders finance used equipment. Expect shorter terms, a larger down payment, and an inspection or appraisal.
7. Can I use farm credit to buy agriculture equipment?
Yes, you can use Farm Credit System and related agricultural lending programs to buy new or used farm equipment