Should I buy or lease new farm equipment?

Should You Buy or Lease New Farm Equipment?

You’ve soberly decided you need a new piece of farm equipment / the farm one over has one and you’ve got to keep up with the Joneses. Now the big question is, should you buy or lease that new farm equipment?

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Check out what John Deere (the horse’s mouth, as it were) has to say on buying vs leasing, and Iowa State Extension also has some good points on the subject.

Here’s a breakdown of the main pros and cons…

The advantages of buying (using a loan)

  • You can depreciate the equipment.
  • You’re building equity in your business (and your credit score as you pay off the loan). On this note, take our Quiz to assess your business health.
  • The equipment will always be at your disposal and you can use it as much as you like.

The disadvantages of buying

  • You have to have the cash upfront to purchase, or a strong balance sheet to borrow to purchase.
  • You’ll not have frequent access to new versions of the equipment.

The advantages of leasing

  • Most lease payments are cheaper than loan payments.
  • You can time your lease payments to align with periods of projected high cash flow.
  • This is considered ‘off balance sheet financing’ so you don’t have to record the lease as a liability.

The disadvantages of leasing

  • You will probably spend more money leasing, over the long-term, than buying with a loan.
  • You are not building equity in your equipment.
  • There may be limitations on the number of hours you can use it.

Where does all this leave you?  Armed with the right questions to be asking of yourself and your operation!

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