Questions to Ask Before You Update Equipment
Questions to Ask Before You Update Equipment on the Farm
It’s time to consider updating some of the equipment on the farm. When you’ve found the perfect tractor or combine, should you buy or should you lease? To determine the answer, you must first establish your machinery cost per acre or the total value of your machinery across all the acres of your operation.
According to Farm Future's Darren Frye, you should work with your Ag finance advisor to discuss whether the best financial decision for your farm is to buy or lease. The answer is the one that leaves your balance sheet the healthiest and also increases operational efficiencies.
To kick off the conversation, there are several questions to contemplate.
- Are there any prepayment or early termination penalties?
- Which type of lease is best for your needs?
- Will owning a new piece of equipment financially benefit your operation?
- Where are you in your farming career?
- Do you have a succession plan in place for your farm?
- What are your short and long-term financial goals?
- And, maybe most important, what is the current financial state of your business?
I like to sit down and talk with each farmer to get as much information as possible on their operation.
This best helps me to help them. I can provide areas where they can possibly save money and make recommendations on which option would be most financially beneficial.
Choosing to purchase or lease equipment is a big decision and one that is best made with the insight of an Ag advisor or banker (or both). No matter what the best financial option is for a customer, Lincoln Savings Bank has the program to fit the need. If you have a large amount of operating capital, purchasing the equipment may be a better option and a capital lease would fit this need.
Philip Pitzenberger, a long-time customer with Lincoln Savings Bank, is now on his second lease. When asked why he chose to lease, he stated “Leasing seemed like less risk than taking out a loan. We don’t keep our equipment long, so building equity isn’t something we are interested in. Makes sense to lease and keep the cost low.”
Lincoln Savings Bank has been a local partner for Iowa farmers for more than 100 years.
For more information on loans versus leasing, contact an Ag banker or call your nearest Lincoln Savings Bank to schedule a time to meet with an experienced Ag banker.
Lincoln Savings Bank, Member FDIC
Leases and all related servicing are provided through partnerships with other lending institutions.