Needless to say, when it comes to buying farm machinery there is an awful lot to consider. From the size of the machine, to the brand, to its function, to the price of it… the factors vary. You need to assess every aspect carefully. After all, these decisions can make or break your business. No one can afford to spend tons of money on a machine that is not effective. Nevertheless, before thinking about all of the factors that have been mentioned, the very first thing you need to do is determine whether to buy or lease the machine. This is a crucial decision and hopefully this post will help you to come to the right answer for you.
First and foremost, it is imperative to establish the key differences between both options. When it comes to purchasing agricultural machinery you will of course have full ownership of the machine. It is yours. You thus have to finance everything that is associated with the machine – from the cost of purchasing it to maintenance and repairs. On the other hand, when you lease a machine you draw up a contract with the owner of the machine. They grant you exclusive use of it for a certain period of time, i.e. two years. In return, you will pay them a sum of money that has been agreed. You will typically pay this in monthly, quarterly or yearly payments. This may be more manageable for a lot of farm owners, especially start-ups, however the machine is not yours and you will need to hand it back at the end of the contract unless you have agreed an extension.
So, now you know the basics regarding the difference between both options, let’s take a look at the benefits associated with both…
What are the Advantages of Purchasing Farm Machinery Outright?
– You own the machine. You have something to show for your money.
– You can replace the machine or sell it at your discretion. Replacing machinery is a lot more difficult when you have leased it.
– You will benefit from increased asset value on your balance sheet.
– If you lease the machine you may be limited to a certain amount of hours of use. If you exceed this you can suffer a penalty as a result. This is something you don’t have to worry about when buying, as there are no limitations.
– You will not need to put down any security deposits.
– You can use the equipment as collateral against other loans, as it has asset value.
What are the Advantages of Leasing Farm Machinery?
– Easier to manager in terms of money. You will not need to make any huge initial outlays when it comes to leasing agricultural machinery. This is often the main hurdle associated with purchasing.
– In regards to tax, lease payments are deemed production expenses.
– You can gain access to machines and technology that you otherwise would not be able to if you purchased outright.
– You can accommodate any short-term needs your farm may have, such as an increase in demand.
– There will be less liability on your balance sheet.
– When compared with traditional loan payments, which purchasers face if they have gone down this route to buy the machine, lease payments are usually less.