The Challenges Related To Farming
When it comes to farming this has always been a very challenging business. The reason why is because the labor is hard, the equipment is expensive, and most harvests are seasonal. In most cases, farmers cannot even predict if their crops will be bountiful or not because this relies heavily on external factors. What is meant by external factors is that there are some parts of the United States that experience droughts of rain and other parts of the United States can experience severe raining either one of these experiences can hinder crop growth.
This is where agricultural factoring comes into play and can keep farming business operating to their maximum potential if there experiencing any of these difficulties. This unexpectedness is one of the main reasons why traditional banks have caution when lending to the farming and agricultural sector. The other reasons are because most farming and agriculture businesses have thin profit margins, large expenses, and complicated supply chains.
Reason Why Agricultural Business Should Consider Factoring
The companies that usually use agricultural factoring are farmers, food manufacturers, food packaging, distributors, suppliers, and food processors. This type of creative financing is not new it has been used in the farming industry for at least a decade. The way that agriculture fracturing works is that the factoring company comes in and purchases the company’s current invoices so agricultural companies don’t have to wait for months or weeks to collect payment from customers.
They are provided the funding that they need in 2 to 3 business days but the factoring company does charge a fee for speeding up the payment process. The fee can be anywhere between 3 to 8 percent and this is for each account. However, if the accounts have invoices that are more current then the lower the fee will be.
When it comes to getting factoring funds the lender does not use the credit of the agricultural business owners but instead, they take the credit worthiness of the invoices. An example if you supply kroger with its produce the factoring company will access the credit of Kroger since the invoices they will be purchasing will be from Kroger.
Is Factoring Good For Start Up Agricultural Companies
If you have a startup company that is in the realm of farming, shipping, or distributing and your clients are all in good standing you can qualify for agricultural financing. If you are a startup agricultural business who is seeking a small amount of funding then there is something available called produce factoring and this type of factoring is a good option because it requires no minimum amount that is needed in receipts.
The capital that the start of the agricultural company gets from agricultural financing can be used for a variety of different things. You can use the funds to purchase tillers, sprayers, tractors, plows, and other types of machinery that you need to start and grow your business. The funds can also be used to pay for permits, licensing, and any other types of regulatory fees. Some business owners use the funding to pay all of their workers. The funds can also be used on smaller expenses that are needed to run an agricultural business such a feed, seeds, fuel, and fertilizers.
Agricultural financing can definitely help to grow a business and also assist small business owners who are looking to get their start up off the ground. It is a way for bigger agricultural companies do get paid quicker for their invoices and when it comes to the smaller startup agriculture businesses it is a way to get all of the supplies and equipment that you will need to assist your business to grow and expand.