Should You Finance Your Agriculture Equipment?

If you are interested in purchasing new agricultural equipment, one of the most significant decisions you will have to make is whether you should finance it. While this decision may seem simple, it does involve some complicated factors that could affect your bottom line. So, before you decide, there are some key points to remember to help you get on the right path to financial success and growth with your agricultural business.

WHEN TO REPAIR OR REPLACE EQUIPMENT

It’s important to know when it’s time to repair or replace your equipment. For example, if your machinery is old and falling apart, it might be time for a replacement. But if a piece of machinery has just one minor problem, like a broken belt, consider repairing it. When making this decision, there are several factors to consider:

• How expensive is the repair versus replacing the machine?
• How often does this machine need repairs?
• How long does each fix last?
• Does the manufacturer offer a warranty?
• Can we get financing for any major?

FINANCE, LEASE, OR BUY?

Buying equipment is a large commitment and may not always be the best option for your business. Leasing or financing is an excellent alternative, as you don’t have to spend all the money upfront. Plus, leasing or financing allows you to upgrade equipment anytime if your business grows and needs more powerful machinery. You can also deduct the interest expense on your tax return.

When the lease term ends, you may be entitled to purchase an asset and make monthly payments until you pay it off in full. You’ll want to weigh the pros and cons before deciding which route is best for you. If you know that your business will need better equipment in a few years, then leasing would work better since you can always upgrade later.

If purchasing equipment is the right fit, talk with your accountant about what deductions are available based on tax laws. It might be beneficial to invest more upfront so that you deduct a larger amount this year rather than over several years. Alternatively, if your business will grow in the future, it makes sense to buy now instead of paying higher monthly payments on a leased piece of equipment. Whatever path you choose, research first and find out what fits your situation best.

TERMS OF FINANCING

Many different types of financing can be used for your ag equipment, including leasing, bank loans, and credit cards. Understanding each option and its fees will help you make the best decision for your company. Leasing is a popular way to finance equipment because it allows you to take advantage of tax incentives without paying interest.

When leasing, you typically pay an upfront fee or deposit as well as a monthly payment which can include either lump sum payments or depreciation charges. One downside to this type of financing is that if something happens to the property during your lease period, like damage or theft, you could lose both the equipment and the down payment.

HOW TO APPLY FOR HEAVY EQUIPMENT FINANCING

Heavy equipment financing differs from standard business equipment financing, such as computers and office equipment. Getting heavy equipment financing may seem complicated, but many resources are available to help you navigate the process.

First, you need a solid credit score and funds available to purchase the equipment outright. If you meet those requirements, here are the next steps to take:

FIND AN EQUIPMENT LENDER

For more information about how to find an equipment lender in your area, call the Financial Services Division of your state’s agriculture department. They will be able to provide a list of companies they recommend.

ASK ABOUT FINANCING

After narrowing down the field by price range and what type of machinery you’re looking for, call each relevant manufacturer on your list and ask them about their financing options.

FIND OUT ABOUT FEES

Remember to inquire about fees when getting heavy equipment financing. You may want to ask if they are negotiable or if you can put them off until the end of the contract period.

NEGOTIATE YOUR CONTRACT

Once you’ve narrowed your choices, it’s time to negotiate contracts and terms to satisfy both parties.

HOW WE CAN HELP

If you want to purchase equipment for your farm, explore all options available before making any final decisions. Find out what each option entails and what it will cost you in the short and long term. Doing this research beforehand could save you a significant amount of money.

Lutz’s Agri-Business Group responds to the increasing need for specialized services for agricultural businesses and farm producers and their desire for specific knowledge about the agriculture industry. Contact us today if you have any questions about financing your next purchase of farming equipment.