Tractor financing

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Page written by Alastair Woods. Last reviewed on October 30, 2024. Next review due 2025.

Tractor financing – also known as equipment financing – is a type of business loan used to support the purchase of new or used tractors. This type of financing lets you use the equipment as you pay for the equipment. Buy one or more tractors without putting strain on cash flow.

There are two types of tractor financing:

Finance (also known as a tractor loan)

Tractor finance is a straightforward business loan. You make a down payment on the tractor and then pay off the balance of the purchase price, plus interest, with regular payments over a fixed-term contract. The equipment acts as security for the loan. When the agreement comes to an end, the tractor is paid for and yours to keep.

Lease

A tractor lease is really a long-term rental agreement. Because you are only financing some of the purchase price, leasing typically has lower monthly payments than a finance/loan. With a lease, you make a down payment and then pay a regular sum plus interest each month to use the tractor. At contract end you can either give the equipment back to the lender, renew the lease at a different cost per month, or buy the tractor for the fair market value – commonly known as a ‘balloon payment’.

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Where can I finance a tractor?

No matter if you are buying new or used and from a dealer or a private seller, there are several ways to finance your next tractor.

Financing from the dealership that sells you the tractor: This is certainly the most convenient financing option, but you will probably need strong credit to qualify. Be aware that dealership financing can often come with higher interest rates than other loan options. You may also be able to get a better discount on the tractor’s sticker price when you have your own financing deal in place – basically, you’d have the same leverage as if paying for the tractor with cash.
Banks and credit unions: A personal or business loan from a bank or credit union may come with the most competitive rates, but typically, these lenders have rigorous qualifying rules and usually want to see that you have been trading profitably for several years. Getting tractor finance from a bank or credit union may also take several weeks to complete.
Online lenders: These type of lenders tend to have more relaxed qualifying rules and will accept borrowers who have younger businesses. Applications are typically streamlined and will often give you an approval the same day, sometimes in just a few minutes. However, because they carry more risk by approving more borrowers, online lenders usually charge higher interest rates than banks and credit unions.

How do I get tractor financing?

You should shop around for different financing offers before settling on a deal. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of tractor financing deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for business owners who have never taken out a tractor loan before.

Getting tractor finance – 4 easy steps:

Pre-qualify for finance: Complete an initial application form to get a ‘pre-approval’. This will allow you to shop for tractors as if you had the cash in your pocket.
Select your vehicle and complete the paperwork: Find your vehicle, get the loan finalised and notify the seller of your purchase.
Close the deal: The lender may give you the funds to pay the seller, or they may pay them direct. You pay your deposit and any administration fees.
Collect your tractor: Put your new workhorse to work.

What are the advantages of tractor financing?

Tractor financing can deliver a whole range of benefits:

Retain valuable working capital for use elsewhere in your business
Immediate equipment acquisition – may show as an asset on your balance sheet
Low or no down payment
Buy over time – pay for your tractor with affordable monthly payments
Preserve other credit lines

What are the disadvantages of tractor financing?

Tractor financing has few disadvantages:

Interest charges and fees will make the tractor more costly than paying with cash
If you lease and do not pay the end of contract balloon payment, the tractor goes back to the lender
You will need to budget for the payments, which adds to your administration load
You don’t own the tractor until it’s paid for at contract end – if you miss payments, the lender can take the tractor back

What information is required when applying for tractor finance?

Every lender will have their own documentation requirements, but standard finance application paperwork includes:

Tractor details including price and details of seller
Your business details and financial records as required
Preferred type of financing – loan or lease
Contract length request

What credit score is needed to finance a tractor?

Most lenders will want a minimum personal score of +640, although with some online lenders, it may be possible to get tractor finance with a score in the mid-500s.

Will tractor financing affect my credit score?

Many lenders will only conduct a ‘soft search’ when you apply for tractor finance pre-approval. This does not show on your credit report. Only when you close the loan does the lender report the debt to the credit reporting agencies. This may make a small initial dip in your credit score, but it should recover as you make payments on time. Tractor finance can actually help your credit score if you never miss a payment. However, if you do miss instalments, they will show as negative impacts on your credit report and may lower your credit score.

Get started with Swoop

Working with business finance experts can make all the difference when applying for tractor financing. Contact Swoop to discuss your borrowing needs, get help with your application and to compare top quality tractor financing from a choice of lenders. Get the vehicles you need without putting strain on cash flow. Register with Swoop today.

Written by

Alastair Woods

Alastair is South African and has a depth of experience in small business financing and strategy. He has led the launch and development of several successful ventures related to fintech, biotech and agriculture. Alastair studied economics and finance at the University of Cape Town, and then went on to complete his Masters at the University of Edinburgh.

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