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Should You Lease or Buy Your Farm Equipment?

To make the best decision when evaluating whether to buy or lease ag machinery for your operations, it’s essential to understand the factors affecting the economics and compare the financial aspects of each option.

Here are some things to consider when deciding whether to lease or buy equipment for your farm. 

Leasing

Lower Payments/Upfront Costs

Leasing your equipment can mean lower upfront costs, down payments, and monthly payments. If you are worried about cash flow overall, this might be appealing. 

Keeping Debt Low

Leasing instead of buying/financing can free up your debt-to-income ratio and allow space for other loans you might need to keep your farming business going, such as structure upgrades, tools, or purchasing more land. 

Better Equipment at a Lower Cost

If you’re looking to get access to newer equipment without the long-term financial burden, then leasing could be right for you. This is especially true for smaller or newer farmers trying to lessen start-up costs. You’ll likely also get the latest technology sooner by leasing instead of waiting several years to upgrade. 

Buying 

Financing and owning have been the traditional path for most farmers and allow you some freedoms that leasing does not. Here’s what to consider when buying your equipment.

Asset Building

When you own your equipment, you add value to your overall wealth and can use that as a collateral asset when making other purchases or taking out loans for your farm. 

Ability to Replace and Upgrade as Needed

Owning your equipment allows you more freedom to replace and upgrade your equipment when you need to instead of being locked into a lease contract. You can also make modifications and updates to your equipment as you wish. 

No Use Limitations 

When you buy your equipment, you aren’t locked in to use limitations on a lease, such as hours used. You also have the freedom to do custom work for other farmers in your area as needed.

 

The most challenging factor to consider when deciding whether to lease or buy is depreciation and the impact of it on your tax position. Be sure to consult a tax professional to understand the full implications of your situation.

Whatever your needs for farm equipment are, First Independent Bank is here to help Southern and Central Minnesota Farmers. Agricultural lending is an area of personal passion and focus for First Independent Bank’s team of lending professionals; our staff understands the farming business!

Speak to a First Independent banker today to evaluate your lending options. We are here to assist you in meeting your goals for your agricultural operations!

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