Purchase or Lease?
What you don’t know could help you. Case in point: the option to lease farm equipment.
By Tharran E. Gaines
There is nothing wrong with making a purchase, but that’s not your only option. A relatively small number of producers and custom operators are familiar with the benefits of a lease.
According to Clancey McCray, AGCO senior marketing specialist for high-horsepower tractors, programs and promotions, only about 10% of Massey Ferguson customers utilize the lease option. However, a lease may be a better fit for producers who want to preserve their capital resources, including credit, for other investments or prefer to trade in their equipment frequently.
“People who lease are generally those who want to have more capital available,” McCray says. “A lease allows you to use a piece of equipment without owning it. In essence, you’re only paying for the cost of use,” she adds, noting that leases are especially appealing to custom operators. “Of course, you don’t have any equity at the end of the lease period.”
That’s not to say a producer can’t have the best of both worlds—leasing a machine to try it out or acquire it when times are a little tight and then purchasing it later. “Most leases we offer are for a term of three years, but the customer always has the first option to buy,” McCray explains.
Leasing versus buying isn’t a decision you need to make by yourself, though. Consider the list of benefits at left, then consult your tax adviser, talk to your Massey Ferguson dealer, and compare the offers from AGCO Finance. A little knowledge could go a long way to making you even more successful.
Comparison of Benefits
Consider a purchase if:
- You want the security of owning a physical asset like a combine or tractor, knowing that your payments result in direct ownership of collateral.
- You plan on keeping the machine for a few years (usually at least five).
- You keep your equipment well-maintained, which helps retain its value and helps with resale or trade-in.
- The hours of use typically exceed the restrictions on a lease.
- You can benefit from tax credits that help offset the additional expense of purchasing the tractor.
Consider a lease if:
- You want to preserve capital for other expenses or investments in your business.
- You have limited funds for a down payment or the higher payments a purchase would require.
- You like to trade often to benefit from the technology and efficiency available in new equipment.
- You plan to expand or reduce the size of your operation and need the flexibility to match equipment needs to farm size.
- You’re nearing retirement age and don’t want to be locked into a large-capital investment.
- You prefer to keep newer equipment in the fleet to reduce downtime.