Examining the pros and cons of leasing a tractor, is leasing worth it for a farming company?
Farming businesses are some of the most important companies in a country, distributing countless different types of food and drink products to the many people all around the area. Food is a huge import/export market, but much of the food is provided to citizens of a given nation, and that’s why farms have the potential to be so successful.
Many given areas have the potential to reap good crops, and with the right equipment and a good plan, farming business owners can easily be very successful. There are quite a few different types of farms of course, many of which have different products but the same general processes to grow and provide a product to the public.
Starting a farming business does cost money however, and with expenses like land, employees, seeds, and equipment, it can be quite difficult to start your new farming business. One way to cut expenses for yourself is through leasing your equipment so you don’t have to pay up front for all the hardware, and you don’t have to handle the responsibility of owning it either, especially expensive equipment like tractors.
That’s why business owners look into the pros and cons of leasing a tractor, because these factors can mean your business being that much more successful.
Purchasing for your Business
Allocating funds can be difficult for a startup business, but some savvy business owners will make it work at the cost of quality equipment, or they will get a bank loan to make it happen.
Both of these can be bad for a company for a multitude of reasons; quality of farming equipment is absolutely essential, because the better the equipment, the better the harvest, and the bigger the profit you make.
Farming isn’t a normal business that trades one product for another on a daily basis; it requires months of work and care to reap the harvest, and your equipment has a heavy hand in this.
If you purchase equipment, you do get full ownership over it, which is great in future years; plus, you get to claim the hardware as a business asset and get some funding for it.
Why Leasing a Tractor isn’t Effective for Newer Businesses
Still, when you buy equipment, you attain full responsibility for it, and if you’re a newer company, it may be best to hold off on that. Taking on full liability for the equipment means that not only do you accept the fact that that equipment loses value by the minute, but also that over time, the equipment will require additional funding for repair.
The problem with this is, with the price of farming equipment like tractors and the cost of repairs, you will very quickly reach a point where it’s more fiscally wise to just buy new equipment and scrap the old hardware. If you’re a newer business still trying to get on your feet, these could be funds you don’t have, especially in one of your first harvests where you’re not making any money until the fall and later.
Plus, if you took out a bank loan and haven’t paid it off and your equipment breaks, you could be forced to take out another loan or use extra money to pay for it, meaning your interest rate or loan amount will just get bigger.
Why Leasing is Better for Newer Businesses
There are quite a few pros and cons of leasing a tractor and other farming equipment, but many businesses do prefer leasing to purchasing, especially when their company is just starting. Leasing is a great alternative for newer farms, especially when you’re low on funds and trying desperately to avoid taking out a loan.
Unlike purchasing or taking out a loan, an equipment loan or lease will allow you to pay a flat monthly rate for a period of time in exchange for the equipment. When the lease is up, you can return the equipment, continue the lease, or purchase the equipment.
There are benefits offered throughout a lease depending on the owner, like upgrades and such, but equipment leases always have some setup for hardware that needs to be repaired. Plus, having a lease gets you tax deductibles, putting money in your pocket on a yearly basis.
Looking at the Pros and Cons of Leasing a Tractor
A lease is a contract though, which means that you don’t want to rush into signing on the dotted line before making sure the lease has what you want. As a farming business, you operate for about half the year depending on your location; therefore, you don’t want a very long term lease, and you want to make sure the lease rate you’re paying is reasonable.
Many business owners get trapped in long leases they can’t afford and are forced to find a way to pay the high cancellation rate just to save themselves from the next monthly payments. Don’t forget, your business may want a type of lease that’s completely different from another business; leases are made to fit a variety of needs.
The trick to leasing farming equipment like tractors is knowing what you want in the lease before even looking. To learn more about the pros and cons of leasing a tractor, click here.