Farmers Fixed Funding For agricultural contractors, the right finance means spreading the risk According to the National Farmers Federation, there are approximately 134,000 agricultural businesses in Australia, producing about 93 per cent of Australia’s daily domestic food supply. For the agricultural sector to continue to operate at current levels of output, expenditure on capital equipment needs to, at the very least, also remain at current levels. Now, with Australia’s interest rates at historic lows and the Reserve Bank looking to further lower the official cash rate, there are a number of finance options the agricultural sector can choose from. Equipment Vendor Finance Whether it’s straight out lending or leasing, a wide range of loan options - with flexible payment schedules created to offer you financing plans designed to fit your individual needs, goals, and cash- flow requirements - are available with finance sourced from equipment suppliers such as CNH Industrial Capital, which is one of the world’s largest and most active equipment financers. According to mixed grain farmer Roger Newman from Cuballing in Western Australia, the beauty of leasing from a vendor like CNH Industrial Capital is that it works well for farmers like him that clock up many hours on their machines. “We lease combine harvesters from CNH Industrial Capital because we can clock up to 1000 hours per year per machine, meaning we get the best from a new lease machine while still able to get a decent return on the machine after we’ve finished with it. “Vendor leasing from CNH Industrial Capital was easy and it works very well if you clock up a lot of hours on your machines like we do; we prefer to spend our capital on other things like land improvements, so vendor leasing is a great way to keep your capital free,” said Newman. Third generation vegetable grower Joseph Fragapane from Werribee in Victoria said that dealing with CNH Industrial Capital made his life easier. “Over the years we’ve leased up to 30 tractors from CNH Industrial Capital; they make leasing easy - once you send them all the paperwork, it’s as easy as 1-2-3. “As long as we’re in this business, we’ll always deal with CNH Industrial Capital,” said Fragapane. “The CNH Industrial group covers major equipment brands within the agricultural, transport and construction industries, so we are experts in the equipment, its applications and the financial requirements of the end users,” said Chris Honess from CNH Industrial Capital. “Our in-depth understanding of the agricultural market and our customers is what sets CNH Industrial Capital apart from general finance providers.” The options open to farming businesses can match a variety of requirements: Chattel Mortgage Under a Chattel Mortgage, it’s the customer that takes ownership of the equipment at the time of purchase. A Chattel Mortgage for financing farm equipment has a number of benefits including a choice of terms (loan lengths) and the fact that as a Chattel Mortgage is secured against the vehicle, it normally comes with lower interest rates. Asset Leasing An Asset Lease enables the customer to have the use of their equipment while the finance institution retains the actual (and legal) ownership of the equipment. At the end of the lease, customers pay a residual on the lease and take ownership of the equipment, sell the equipment or re-finance the residual and continue on with the lease. With Asset Leasing, tax deductions for the lease payments and any GST contained in the lease payment can be claimed back. Hire Purchase According to the Australian Taxation Office (ATO), many businesses enter into Hire Purchase or leasing agreements to pay for and use equipment over a period of time rather than paying the full cost up front. Under a Hire Purchase agreement, you purchase the equipment through installment payments and use the equipment while paying for it, however you do not own the equipment until you have paid the final installment. Operating Lease Equipment Rental (or Equipment Hire) is an agreement between a hire company and a customer whereby the hire company buys the equipment on behalf of the customer. This option allows fixed repayments, no obligation to buy out the equipment at the termination of the contract (it is then returned to the hire company) and users usually claim 100 per cent of the rental payments as a tax deduction. Seeking expert advice “With our 35 years of experience in the Australian agricultural sector and the absence of any hidden fees and charges, we are an attractive choice for farmers and agricultural contractors alike,” said Honess. “Also, we always strongly recommend anyone considering equipment options should speak with their accountant or financial adviser to ensure they are making the right choice for their business.” Whatever financing is selected, the fact remains that carefully placing debt risk with multiple sources and not tying up overdraft working capital to purchase equipment is a financially desirable outcome.