Latest / Small Business Success with Fexingo: Local Companies, Main Street Stories, and Community Commerce / How a Small Farm Supply Store Built a Rent-to-Own Program That Beat Tractor Supply
Transcript
- Lucas: So, Luna, I want to talk about a small farm supply store in western Iowa — Peterson's Farm Supply, third-generation family business. And I'll be honest, when I first heard the story, I thought it was going to be another 'local store fights big box and loses' tale. Luna: But it's not, right? Because I've seen the numbers Jim Peterson shared with a local business group — they actually grew revenue by 40 percent over two years. Lucas: Exactly. And their weapon wasn't cheaper prices or a fancy website. It was a rent to own program on small equipment. Think about it — a farmer needs a new tiller or a compact tractor. At Tractor Supply, you pay full price upfront or finance through a national lender with double-digit interest. At Peterson's, you can take it home with no credit check, pay a monthly rental fee for 24 months, and then own it outright. Luna: Zero interest? Lucas: Zero interest. The rental fee covers their cost plus a slim margin, and they make the real money on parts, service, and the fact that the customer keeps coming back. Jim told me their average rent to own customer spends about $1,200 a year on attachments, repairs, and consumables — things Tractor Supply doesn't get a dime of. Luna: So the equipment itself is almost a loss leader. The program builds loyalty. Lucas: Exactly. And here's the thing — it's not new. rent to own has been around forever in furniture and electronics. But in farm supply, no one was doing it. The big boxes can't easily replicate it because their model is built on high volume, low touch. They don't have the relationship infrastructure to manage 24-month lease agreements with individual farmers. Luna: And Peterson's does. They know every customer by name. Jim told me he can tell you which field a customer's tractor will be working without asking. Lucas: That's the key. The program works because the trust is already there. Let me give you a specific case. A farmer named Dale, who runs a 200-acre operation near Council Bluffs, needed a new rotary tiller. At Tractor Supply, it's $4,200 plus tax. He doesn't have that cash in April — that's planting season, money's tied up in seed and fertilizer. So he goes to Peterson's, puts down nothing, pays $175 a month for 24 months. Total cost: $4,200 exactly. Same price. But he gets to use it all season, and he buys his replacement tines and belts from Peterson's because it's convenient. Luna: And Dale's paying $175 a month versus trying to get approved for a store credit card at 28 percent APR. That's a no-brainer. Lucas: It is. And Peterson's isn't taking on crazy risk either. They hold the title until the last payment. If someone defaults, they repo the equipment — which is still nearly new and easy to resell. Their default rate is under three percent, which is lower than most auto lenders. Luna: But not every small business can offer zero-interest financing. How is Peterson's funding this? Lucas: That's the part I found most interesting. Jim doesn't use a bank. He draws on a line of credit from a local community bank that knows his family. He buys the equipment at wholesale, lets it sit on his floor as inventory, and when a customer takes it on rent to own, he records it as a lease receivable. The bank sees the paper and extends him the credit. It's a closed loop — local bank, local store, local farmer. Luna: So the whole system relies on relationships, not algorithms. Lucas: Right. And that's why Tractor Supply can't copy it easily. Their financing is outsourced to a national lender. Their store managers don't have the authority to structure a 24-month payment plan with a handshake. Peterson's can because it's his name on the sign. Luna: I love that this isn't a tech story. No app, no platform. Just a guy with a notebook tracking payments. Lucas: Literally a spiral notebook. Jim showed me. He writes down the customer name, the equipment serial number, the monthly payment, and the due date. That's it. He says if you have more than 50 active leases, you might want a spreadsheet, but he's never needed one. Luna: So what's the downside? I mean, 40 percent growth sounds amazing, but there has to be a trade-off. Lucas: Cash flow. When you sell a $4,000 tiller for cash, you get $4,000 that day. With rent to own, you get $175 a month for two years. Jim told me the first year of the program was tight — he had to lean on his line of credit to buy more inventory. But once the leases started maturing, the monthly income stream became very predictable. Luna: So it's a trade of lump sum for steady income. And steady income helps with planning. Lucas: Exactly. And here's the kicker — Peterson's saw their service revenue jump 60 percent. Because customers who are paying monthly are more likely to come in for maintenance. They don't want to miss a payment because their equipment broke. So they bring it in for tune-ups, blade sharpening, all that. That's high-margin work. Luna: And Tractor Supply's service department — if they even have one — is probably understaffed and overpriced. Lucas: Most big box stores don't do repairs on site. They'll sell you a part and point you to YouTube. Peterson's has a two-bay service shop with a mechanic who's been there 18 years. He knows every model they've sold. Luna: So the rent to own program feeds the service shop. It's a flywheel. Lucas: It is. And Jim's planning to expand into zero-turn mowers and utility vehicles next. Same model, same community. He's already got 40 leases active, and he expects that to double by the end of 2027. Luna: It's such a smart strategy because it's specifically suited to a small business. A big chain couldn't do it without overhauling their entire operating model. Lucas: That's the lesson I keep coming back to. The small business advantage isn't about being cheaper. It's about being more flexible. It's about saying yes to something a national competitor can't say yes to. Peterson's said yes to a payment plan that made sense for his customers, and it transformed his business. Luna: And it cost him almost nothing to start. Just a notebook and a willingness to trust his customers. Lucas: Which brings me to something I've been thinking about. We do this podcast because we believe these stories matter. And we keep it ad-free because we don't want to interrupt the conversation with someone trying to sell you a CRM tool. Luna: Right. The whole point is that you get the idea without having to sit through a commercial. Lucas: If you've gotten value from any of these episodes — maybe you've even tried something in your own business — the best way to keep this going is a small contribution. It's completely voluntary. The link is buy me a coffee dot com slash fexingo. That's all lowercase. Every dollar goes straight to production time. Luna: And we mean it when we say no pressure. But if this episode saved you the cost of a business consultant, consider it. Lucas: Alright. Back to Peterson's. One thing I want to highlight is that Jim's program actually creates a barrier to entry. Anyone could copy the idea, but they can't copy the 50-year relationship his family has with the farming community. That's moat. Luna: A relationship moat. I like that. So for a small business owner listening, what's the takeaway? How do you identify your own version of rent to own? Lucas: I think you look for a pain point your customers have that isn't about product quality. Dale didn't need a cheaper tiller. He needed a way to pay for it that didn't break his planting-season cash flow. So ask: where is your customer's cash flow pinched? What could you offer as a payment structure that solves that? Luna: And it doesn't have to be rent to own. Could be a subscription, a seasonal layaway, a prepaid maintenance plan. The key is that it's something the big guys don't do. Lucas: Exactly. Peterson's proved that a simple, trust-based financial product can be more powerful than any marketing campaign. And it cost them a spiral notebook. Luna: I'm already thinking of three local businesses that could try something similar. A landscaping company, a tire shop, even a dentist. Lucas: A dentist with rent to own crowns? That might be a stretch. But I love the thinking. That's the whole point of this show — to spark one idea you can act on. Luna: And next time you're in western Iowa, stop by Peterson's. Tell Jim we sent you. Lucas: Just don't expect a discount. But you might leave with a 24-month payment plan on a tractor.