Author: Gus Ray, President, DFS Finance, a division of FNBO
In this article:
- Farm equipment financing strategies in today’s agricultural economy
- Lease vs. buy decisions for tractors and combines
- Refinancing equipment loans to strengthen cash flow
- Evaluating bonus depreciation in lower-income years
- Leveraging a flat yield curve to optimize loan terms
- Preserving working capital amid tight farm margins
- Selecting an experienced agricultural equipment lender
After three consecutive years of market pressures, farmers are fundamentally rethinking how they finance equipment purchases. Global trade uncertainty and rising input costs have squeezed cash flows in recent years, while shifting tariffs pushed commodity prices down last year.
At the same time, farm equipment prices continued to climb. The average cost of farm machinery jumped over 21% between 2020 and 2023.
The widening gap between farm income and machinery costs has cooled demand for new equipment. Year-over-year row crop tractor sales were down 22% in 2025, while combine sales declined 35%.
However, waiting for economic certainty to purchase new equipment isn’t always an option. Aging equipment brings higher repair costs and increases the risk of breakdown during critical planting and harvest windows.
Terry Griffin, an agricultural economics professor at Kansas State University, points to equipment fires as one example. According to his research, the number of combine fires in Kansas rose as new equipment sales fell, jeopardizing crop production at a time when farm income is needed most.
To keep operations running smoothly, even in the face of shrinking margins and elevated equipment prices, farmers are adapting to the current landscape and looking to stretch each dollar further.
New Equipment Financing Trends
Because of the current economic environment, many farmers are adapting by exploring more flexible and strategic financing choices.
From Cash to Credit
With cash flows tightening and interest rates softening, many buyers who traditionally paid cash for equipment are now choosing to finance. Financing preserves working capital for operating needs while still allowing farmers to upgrade critical machinery
The Rise of Equipment Leasing
Leasing is also gaining momentum. While agricultural lending has historically been loan-heavy, leasing is becoming an increasingly attractive alternative because it reduces upfront costs and annual payment obligations. For many operations, leasing provides greater financial flexibility while keeping equipment current.
Tax Considerations: Bonus Depreciation vs. Cash Flow
The shift toward leasing is particularly noteworthy given current tax rules. When considering a lease over financing, it's important to weigh the tax implications carefully. Under bonus depreciation, farmers who purchase equipment can deduct 100% of the asset's value in year one. A $500,000 tractor, for example, could offset $500,000 of taxable income.
However, farmers are choosing to forgo this tax advantage. In today's ag environment, taxable income may not be high enough for the deduction to outweigh the benefits of lower payments and improved cash flow.
This willingness to sacrifice tax advantages for cash flow preservation is a clear sign of how tight margins have become in today's agricultural economy.
Refinancing and Term Extensions
Farmers are also evaluating their existing debt. Equipment financed when interest rates were at their peak is now being refinanced, as softer rates allow many growers to reduce payments and improve cash flow. Others are restructuring debt by extending traditional five-year terms to six or seven years to gain additional relief.
The Flat Yield Curve Advantage
Extended terms are appealing in today's environment. A flat yield curve allows farmers to borrow seven-year money at nearly the same rate as three-year money, enabling them to spread payments without the typical interest-rate increase.
While equity builds more slowly, the absence of prepayment penalties preserves flexibility, allowing loans to be paid off early if conditions improve.
Whether you are financing a tractor, combine or irrigation system, choosing the right partnership matters.
Finding the Right Finance Partner
Whether a farmer is looking to finance, lease or restructure an existing loan, choosing the right lending partner is critical to preserving capital and protecting cash flow. A lender without agricultural expertise may not fully understand the cyclical nature of farm income or today’s market pressures, which can result in less flexible terms and higher costs.
To mitigate that risk, work with a lender who understands agriculture and takes the time to learn your specific operation. With industry knowledge and insight into your working structure, an experienced agricultural lender can often structure more favorable and more creative financing solutions tailored to your needs.
Your lender should act as a true partner, walking you through different scenarios and helping you evaluate the best path forward to preserve working capital and maintain flexibility.
At DFS Finance, we focus exclusively on agricultural equipment loans and leases, including farm machinery and irrigation equipment. Our team understands equipment values, market cycles and how to structure debt to fit each operation’s unique situation.
With significant repeat business and long-standing relationships across the agricultural community, DFS Finance is positioned to support producers through today’s tighter cash flow environment and beyond.
Ready to explore your equipment financing options? Whether you’re purchasing new equipment, refinancing existing loans or evaluating lease-versus-buy decisions, DFS Finance is here to help you preserve cash flow and keep your operation running strong.
Contact DFS Finance today to discuss your equipment financing needs.
Common Questions About Farm Equipment Financing
Q: Should I lease or buy farm equipment?
A: The decision depends on your current cash flow situation. Leasing offers lower payments and preserves working capital, while buying builds equity and offers tax advantages through bonus depreciation. In today's tight market, many farmers prioritize cash flow preservation over tax benefits.
Q: Can I refinance existing farm equipment loans?
A: Yes. With interest rates declining, refinancing equipment purchased at higher rates can reduce payments. Unlike home mortgages, farm equipment refinancing typically involves minimal fees.
Q: What loan terms are available for farm equipment?
A: Terms typically range from three to seven years. Due to today's flat yield curve, interest rates on a seven-year terms are nearly the same as shorter-term loans, making longer terms attractive for cash flow management.
About the Author
Gus Ray is the president of DFS Finance, a division of First National Bank of Omaha. For 50 years, DFS Finance has specialized exclusively in loans and leases for farm equipment and irrigation equipment financing, serving agricultural operations across the United States.
DFS Finance is a division of FNBO, Member FDIC.
Credit subject to approval. Terms and conditions apply. Financing options vary by borrower and equipment type.
Market statistics referenced are based on industry sources and may change over time.
