Buying vs. Leasing Ag Equipment: Exploring Your Options

by New member BarnCat on ‎11-27-2017 04:12 PM

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Both buying and leasing equipment come with their own distinct advantages but, perhaps most importantly, they both give you access to best-in-class technology, along with the ability to optimize your budget. The following topics will help you compare the features available with these two options and see which one best suits your operation's current needs.

 

Equipment Leasing Advantages

Equipment leasing is a popular choice if you're looking to maximize cash flow and use industry-leading machinery to help out on your farm. You typically need little to no money for the initial down payment, which provides you with instant access to the equipment you need. This also frees up your resources, allowing you to reallocate funds previously earmarked for buying new machinery to other pressing priorities.

 

Another attractive incentive to equipment leasing is that you can usually deduct your lease payments and depreciation from your taxes, which provides even more savings. Equipment leasing payments are also typically less expensive than a loan note.

 

Lowering the overall debt on your balance sheet improves your debt-to-asset ratio if you have equity in assets. This lets you clean up your budget and make more accurate financial projections for the upcoming quarters. Once you reach the end of the lease, you're no longer responsible for the equipment.

 

Flex Leasing Options

Some equipment manufacturers have captive finance companies that offer several financing options, and will work with you to pick one that best suits your needs. One of the options that’s often appealing to farm owners is a flexible return or purchase lease agreement. This type of flex lease incorporates an option that lets you either return or purchase the equipment outright at predetermined intervals, known as "outs," before the lease ends.

 

For example, say you have an end-of-lease option to purchase a piece of equipment after 60 months of payments. With a flex lease, you have the option to either buy or return the machine at 36 months. You also have the option to continue with your current lease agreement for the remaining term. This provides your operation with the financial flexibility you need to respond to shifting market trends and fluctuating prices.

 

Advantages of Outright Ownership

If you’re looking for a new machine because you have a consistent, long-term need for it, then buying may be the best option. Those who are considering equipment ownership often intend to keep the machine for an extended period, with the expectation of some maintenance costs to be incurred over time.

 

Using a loan from a captive finance company for your equipment purchase offers several advantages. In addition to providing you with advanced machines to compete in the farming industry, you get to keep the equipment once the loan has been paid off. A fully amortizing loan offers the lowest total cost of ownership for the long term when compared to leasing because it allows for equity to be built up more quickly. 

 

Additionally, under IRS tax code Section 179, you can claim up to $500,000 as a deduction toward the purchase of the equipment.

 

Partnering with a Captive Finance Company*

With years of industry experience helping agricultural operations grow, a captive finance company has the capabilities and know-how to collaborate with you on your immediate and long-term strategies for the success of your farm.

 

The people you're working with at a captive financing company are industry experts, and their knowledge extends beyond just the financial side of things, such as the business cycle, the market and agricultural trends.

 

This means they're going to make sure you leave not only with the best product offering, but also the flexible and sustainable financing needed, whether it's leasing equipment or obtaining a loan. Further, a captive finance company offers on-call and on-the-ground support, along with integrated services, such as farm equipment financing and insurance needs.

 

As you can see, there are benefits and drawbacks to any purchase or lease decision. A thorough understanding of your operation’s current workload and future needs, as well as partnering with an equipment manufacturer and financing company you can trust are essential for making the right choice. 

 

To learn more about buying and/or leasing equipment for your operation, contact your local Cat® dealer or visit the Cat Financial website.

 

We’d like to hear your thoughts and/or experiences with buying vs. leasing equipment for your farm or ranch.

  • Do you typically buy or lease equipment for your operation?
  • What factors do you consider when making these decisions?
  • In your opinion, what are the main advantages of buying equipment? Leasing equipment?
  • Have you ever faced any challenges throughout the equipment purchasing process? What about the equipment leasing process?
  • Which resources do you usually tap into when spec’ing new machines or equipment, and deciding whether to buy or lease it?

*This communication is to be used for informational purposes and should not be considered tax or legal advice.

Comments
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on ‎03-04-2018 04:10 AM

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  • I’m an Attachments Product Application & Sales Support Specialist for Caterpillar in North America. I have been with Caterpillar for five years including roles in the field as a dealer sales support representative and marketing support in the skid steer and small wheel loader product groups. I graduated from Iowa State University with degrees in Agricultural Business and Economics. Our goal is to provide a full portfolio of attachments for our customers to be more productive and versatile with their machines.
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  • I’m a Compact Wheel Loader Product Application Specialist for Caterpillar in North America. I have 11 years of experience, including roles in the field as a dealer technical support representative, and as a distributor business model consultant.  I graduated from North Carolina State University with a Mechanical Engineering Degree, and wanted a job where I didn't have to sit in front of a computer all day.  This job allows me to get out and get my hands dirty, with the goal of providing solutions to customers’ machine needs.
  • I am a Marketing Communications Specialist for Caterpillar with over twelve years of experience marketing the Cat brand to customers in Latin and North America. My goal is to arm customers with the information needed to make well informed purchase decisions; to maximize the value of Cat machines by using an array of Cat Work Tool attachments; and to minimize the total cost of ownership by using Cat parts and Cat Dealer service.
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  • I am a Product Application Specialist with 16 years of experience in the industry. As a Building Construction Products Global Trainer, I focus on training dealers and customers on machines, attachments and applications as it relates to the construction, agriculture and landscaping segments.
  • I have been with Caterpillar for more than eight years, working in various roles including a materials engineer, a filters product manager and my current position as a parts consultant. My job allows me the opportunity to work with Cat dealers and customers providing insight on how the use of quality filters and fluids results in better equipment performance and lower owning and operating costs.
  • I am a marketing and sales support professional for Caterpillar. In this role, I work with our marketing and customer service teams to support or dealers and customers, concentrating on our Small Wheel Loader, Skid Steer Loader, Mini Excavator and Dozer product groups. The exchange of ideas, information and opinions about equipment and how it’s used in various industries on forums such as this blog helps me fulfill my role at Caterpillar to the best of my ability.
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  • I am a Product and Application Specialist with over 35 years experience at Caterpillar. I focus on helping you to determine the best Cat machines, work tool attachments, and services for you to use in the building and general construction, landscaping, specialty trades, and agricultural industries.
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  • Jeff Brown is a marketing professional for Caterpillar Skid Steer, Multi Terrain and Compact Track Loaders. Over Jeff's 12 years in the industry, he has visited with and studied the needs of customers across landscaping, construction, and agriculture segments. Delivering innovative solutions that solve customer's problems is Jeff's main focus.
  • I am a North American Product and Application Specialist for Caterpillar. In this role, I have had the opportunity to represent Caterpillar at various trade shows and train customers on new Small Wheel Loader content. I graduated from Purdue University in 2001 with a Mechanical Engineering degree and have spent the past 15 years with Caterpillar in various engineering roles. Growing up in the Mid-West, I have always loved the cold and the unique activities winter enables. Unfortunately, I had to give those up when I moved to North Carolina. I don't care what people say, you never get used to a hot climate.
  • I am a Filter and Fluid Marketing Consultant with over 14 years experience working at Caterpillar. My focus is to ensure customers understand the importance of using superior filtration and lubrication products in their equipment.
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