The investment costs for purchasing new and used agricultural machinery have increased sharply over recent years. It’s nigh on impossible to acquire machinery outright, so buyers need to think about new acquisitions carefully. Significantly more than half of agricultural machinery is financed externally today. The current very low market interest rates also make financing appealing.
Agricultural machinery financing should be tailored to the specific characteristics of each farm. AGRAVIS Financial Service (AFS) offers a large number of different models.
The following financing models are among the most frequently selected variants:
- Loans: the best known financing method, yet in decline. The investment appears immediately on the investing company’s balance sheet. A must for capital expenditure reserves.
- Instalment purchase: the opposite to a loan – also entered onto the balance sheet. In practice, it is used little since it’s barely justifiable on a financial level.
- Leasing: gaining in popularity. This option attaches more importance to usage rather than balance sheet disclosure. The most important thing is what is agreed for the end of the contract and what is actually implemented. You should only conclude a leasing agreement with a trusted partner.
- Renting: as with leasing, off-balance sheet usage of machines is usually the primary motivating factor for renting. Normally hired for six to 36 months, customers prefer rental when they wish to try out a machine or use it for a specific task for a set period of time. The investing farm does not bear the marketing risk for the machine at the end of the investment period. In most cases, customers do not intend to acquire ownership of the machine, but they can reach an agreement for purchase with AFS, for example.
What financing model is best for me?
There’s no single answer to this question. As a general rule, you first need to decide what options are feasible when selecting a financing partner:
- Manufacturer's own financing company: when it comes to financing for new machines, there is generally no other option for financing since the manufacturer “sponsors” its own financing company to launch machines onto the market. As a general rule, interest rates between 0 and 0.99 per cent a year apply. A no-brainer considering current interest rates. Many of the payment plans offered are designed to promote machine sales and are not necessarily advantageous on an operational level.
- Manufacturer-independent financing companies: such companies mostly offer highly personalised, bespoke financing since they usually aren’t subsidised by the manufacturer. Frequently an interesting alternative to the manufacturer’s own financing. Such models are often favourable for second used farm machinery.
- Own bank: customers’ banks, usually savings banks, cooperative banks or local rural credit cooperatives know their customers very well and can make prompt decisions on loan approvals. However, they don’t usually include special elements such as individual payment plans, winter moratorium, partial or full service, or insurance. Top conditions similar to those from a mortgage bank with a interest rate of about 1.7 per cent are offered with a mortgage as collateral. However, such financing has an impact on the farm’s borrowing limit at the bank.
- Mortgage bank: state-subsidised programmes from mortgage banks with special conditions offer a very interesting customer interest rate, but firmly tie the customer to the selected agreement structure. They are usually inflexible or costly when it comes to any needs-based changes, such as an early contract termination, an add-on agreement or object replacement, as often required in the farming sector. Customers thus need to “ride it out” until they reach the originally agreed end of the contract, no matter what it will cost.
How can AGRAVIS Financial Service (AFS) help?
As a manufacturer-independent financial service provider, AFS not only offers all types of financing for agricultural machinery, but also provides insurance, servicing and marketing when needed.
“As a general rule, we assemble bespoke packages for customers,” explains Wolfgang Goeke, the person responsible for sales at AFS. The demand for all-inclusive solutions has risen steadily over recent years. Besides cost transparency, the customer receives a clear, permanently compatible calculation basis for the entire financing period. “At AFS, the customer can compile the overall package from a set of modules to optimally suit their needs. It may contain financing only or financing plus insurance for machine risks and come with or without servicing,” explains Goeke.
Servicing ranges from partial servicing, such as tyre replacement during the financing period, through to full servicing. All inspections required by the manufacturer are included with financing. AFS can also draw on AGRAVIS machinery specialists to provide assistance in selecting the machine and also marketing it at a later stage.
There is now a high demand for underwriting external and internal damage to the selected farm machine with machine (breakage) insurance.
A farm’s or contractor’s technical equipment represents an increasingly larger proportion of their operating assets. It is essential to build up financial reserves as a buffer against unexpected damage to agricultural machinery. Such reserves are difficult to calculate, tie up considerable capital and are also subject to tax. If the customer takes out machine insurance, a fixed insurance premium is paid instead of building precarious reserves.
The AFS insurance package provides coverage which is specifically tailored to the needs of farms. The AGRAVIS insurance service is included and their specialists always provide the right solution for needs. The bespoke insurance package offers extensive options to personalise its content. In the case of second used farm machinery, these range from an extension to the factory warranty through to a worry-free package, which includes theft, fire and other risks.
Deductibles totalling different amounts can also be selected as required.
Customers can take advantage of the entire AFS package for new and second used farm machinery. Both AGRAVIS customers and other customers can use the service.