Tractors are an essential part of nearly every farm. Whilst they often represent excellent value for money with a long working life, the upfront cost to purchase a tractor is often significant. Many farmers in the UK are asset-rich but may not have the capital to invest such a large amount in one payment, making this a purchase that is difficult to make outright. If you are looking to buy a new tractor from a manufacturer, they might provide there own finance. They don’t typically have the most competitive terms. Buying a used tractor on finance often requires a specialist commercial finance broker such as Mill Wood Finance. Here’s how we can help you to finance a tractor.
What is tractor finance?
Tractor finance, a part of the broader farming finance, is a type of asset finance. Asset finance is a well-established financial product designed to fund the purchase or lease of a vehicle or equipment.
There are three main types of tractor financing, these being:
- Finance lease
- Operating lease
- Business loan
Finance lease explained
With a finance lease for buying a tractor, you will have the option to purchase the tractor outright at the end of the lease agreement. The lender will technically own the tractor until a final payment to buy the tractor is made. However, you will be responsible for the upkeep of the tractor throughout the duration of the lease period.
Operating lease explained
With an operating lease, the leasing company will retain ownership of the tractor throughout. They will also remain responsible for the maintenance of the tractor. With an operating lease, it is more similar to renting a tractor compared to buying a tractor.
Business loan
You can apply for a standard business loan to purchase a tractor. Most business loans require security, although you can get unsecured business loans.
If you apply for a business loan to purchase a tractor, you can purchase the tractor yourself with the funds. This way, there isn’t a balloon payment at the end of your lease agreement, although the monthly payments might be higher.
Tax implications of tractor finance
Speak to your accountant for specific advice regarding the tax implications of tractor financing. If you use finance to lease an asset, the asset will be recognised on your balance sheet as well as the lease liability. The depreciation of the asset, in this case the tractor, can be considered for tax purposes.
What to do at the end of your tractor finance contract
If you have a finance lease, there will be an opportunity to own your tractor outright at the end of your agreement. You’ll be required to pay the remaining balance, known as a balloon payment, purchase the tractor. This balloon payment is calculated at the beginning of the lease agreement, so it does not necessarily match the current market value of your tractor considering you have put it to use.
If you can not afford to purchase the balloon payment out right, you could negotiate with the lender for a new lease, or apply for a new tractor finance lease agreement.
You also have the option to return your tractor if you purchased it using lease finance. You will be expected to return the tractor in good condition, or expect to pay the costs associated with returning it to a suitable condition.
If you had used a business loan to purchase the tractor, then the end of the repayment schedule doesn’t necessarily have any implications on the ownership of your tractor.
Applying for tractor finance
At Mill Wood Finance, we have been helping UK businesses to access commercial finance for over 25 years. Given there are a number of different financial routes to purchasing a tractor, you will likely have a few questions about which method is right for you and your farm. Our UK-based team are on hand to help. Contact us to get started with your tractor finance application, or to ask any questions you might have.
Tractor Finance FAQs
Can you get a tractor on finance?
Yes, you can get a tractor on finance. There are a variety of different finance routes you can take to purchase a tractor, including applying for a business lease, operating lease or finance lease.
Can you buy a used tractor on finance?
Yes, you can buy a used tractor on finance, as well as new tractors.
Which bank is best for tractor finance?
Whilst not every bank will offer you tractor finance, look for banks that offer asset finance or commercial finance. Better still, work with a specialist commercial finance broker such as Mill Wood Finance who can access a wider panel of lenders, helping you to access the most competitive rates and repayment terms.
How long of a loan can you get on a tractor?
Most high street lenders will likely offer three to five year loans for tractors. If you require a longer term loan, or any type of clause that may make your loan application more difficult, we highly recommend you speak to a specialist commercial finance broker such as ourselves who can help you to access specialist finance products you may not be able to find on the high street.
How do farmers afford tractors?
This is a common question, given the high purchase price of new and used tractors, especially in a difficult economic time for many farmers in the UK. Luckily, there are farm finance solutions available to help farmers break down the costs of buying a tractor into more manageable monthly repayments.