Are you looking to boost cash flow in a tight financial environment while still operating new machinery?

Consider leasing. This strategy allows farmers to update their machinery line without making a large down payment.

“Most of the time, a [purchase] down payment would be substantially more than what [an annual] lease payment would be,” says Garvin Marsh, regional sales manager for Ziegler Ag Equipment. “It also enables a farmer to have a lower annual machinery payment and stretch out payments for a longer period.”

This can benefit a farmer who doesn’t have an implement to trade or who has little equity in a trade-in implement, he says. It also enables farmers to direct working capital to other areas in times of tight financial margins.

Lease terms vary. “They can be structured as a true walkaway lease that has a certain number of hours in a year,” Marsh says. If a tractor is used more than 3,000 hours over a five-year lease with 600-hour annual limits, a farmer would incur extra fees. 

A pro lease also consists of an annual hourly limit, but there is a purchase or renewal option at the agreement’s end.

“This allows for more flexibility,” Marsh says. “If you go over the agreement by 500 hours [with the implement] at the end of the lease, it is not as big of a deal because you are buying it in the end. If it has a buyout amount for a figure like $200,000, you also can buy it for that amount or renew the lease for another year at the payment that was in place.”

Tractors are the main implements leased, although other commonly leased machinery includes hay tools, sprayers and skid-steer loaders. Farmers lease fewer combines and ground-engaging tools, such as field cultivators and disc rippers.

“A tractor’s pretty simple to lease and return it to the dealer,” Marsh says. Other items, such as combines and tillage tools, have more moving parts and also are more prone to damage than tractors. In those cases, “there’s more risk to the leasing company,” Marsh says.

Drawbacks exist

Compared with an outright sale, overall costs through the life of a lease are higher due to more interest costs, Marsh says.

“You are not buying down principal as quickly as you do on a straight purchase,” he adds. 

Farmers still are responsible for maintenance and repair. This is unlike a rental, when the company incurs such costs, Marsh says.

If sufficient working capital exists, now also may be a good time to update a machinery line through an outright purchase, he adds. “When the [commodity] market comes back, prices won't be as attractive as they are right now,” Marsh says. “I compare it to the stock market. It’s hard to do, but you want to buy low and sell high. We advise farmers to work with their dealer in forming a long-term approach.”