Getting the equipment finance basics right for agribusiness

Cam Pittman
Posted by Cam Pittman
Equipment Finance

The agribusiness sector is incredibly equipment-intensive across every leg of the journey from farm to table. Growers, packers, and processors all require different equipment, and their needs further vary according to their end product.

Tractor traveling through a field with harvest attachment at the rear, under a cloudy sky.Growers need equipment for production, cold storage and water management. Food packagers have requirements for cold storage, packaging, and transport to market. Food processors have completely different needs, and those vary depending on the ultimate end product. Beyond these various phases — growing, packing, storing, processing, shipping, etc. — there is also incredible variation in the equipment itself, be it the different kinds of harvesting equipment, bagging lines to get products to the freezing space, packing equipment, and frozen storage facilities.

And that doesn’t even begin to touch on the most critical piece of the puzzle: each grower’s unique needs.

Clients often have to put out a lot of money up front: they have to grow a product, get it to market, then sell it — and only then does money start coming in. For a processor of fresh cherries, for example, their processing season might only last two weeks, then they ship the product and receive their funds. In a case like that, it may make sense to have one annual payment vs. monthly payments. For some growers, there are only three or four months of the year when they see any cash at all, so it may benefit them if payments are concentrated in those months.

Bank of the West’s Equipment Finance Division works with a broad range of agribusiness clients, from those who grow food and deliver straight to their customers’ homes, to those who purchase produce from a spectrum of growers and process it to add value (e.g., freezing, creating ready-to-eat meals, etc.). Our experience has shown that a one-size-fits-all approach to financing equipment just doesn’t work.

Every client has highly specific requirements, and we work hard to find the type of flexibility in structures or payments that works best for them. It’s a complex blend, and it’s further complicated by the seasonal nature of agribusiness overall.

These are some basic questions that any agribusiness owner may consider when it comes to financing equipment:

  • What are your unique cash-flow realities? For example, if they are very seasonal, that may influence how you want to structure your payments.
  • How do you intend to use the equipment, and how vital is it to your business? The answers can help inform your decision on the type of lease and financing that will meet your needs.
  • How does the equipment fit into your long-terms plans? Depending on your answer, you may find some form of tax lease or operating lease might be more attractive than financing and owning their equipment.

At Bank of the West, we make it our business to understand these and other nuances, and strive to provide a structure that best meets our clients’ needs. Getting it right comes down to listening and presenting structure options that optimize the client’s planned utilization so we set up something that works in the long run.

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