If you are looking to purchase agricultural equipment, it is likely that you also want to find agricultural equipment financing options. After all, this type of equipment is incredibly expensive, and few of us have enough capital behind us to purchase machines outright. However, it is becoming increasingly difficult to obtain business financing because institutions want to see extensive financial documents to prove viability. In fact, it seems that around 90% of small businesses will be turned down for bank loans. Luckily, there is a solution out there as well, which is equipment leasing.
What Is Agricultural Equipment Leasing?
A lease is a type of financing that businesses use in order to be able to use pieces of equipment. It is different from a loan, because ownership will never be with the person taking out the lease. Hence, you are effectively renting your equipment. After the rental period, you can return it, or you can purchase it instead.
Difference between Loan and Lease
If you lease, you generally don’t have to offer a down payment. There are also no financial covenants and no blanket liens to deal with. Furthermore, you don’t have the risk of your equipment becoming obsolete. The payments you make on a lease are also tax deductible and since the transaction is off the balance sheet, there is no impact on your overall credit.
With a loan, by contrast, you will have to pay a down payment. You must also agree to a blanket lien and possibly to a financial covenant. Furthermore, if the equipment becomes obsolete, you carry the responsibility for that. Tax deductions are also possible, but they are only partial. Finally, a loan shows on your balance sheet, which means that your available credit is affected.
Why Leasing Is the Way Forward
Agricultural equipment is incredibly expensive. John Deere, the manufacturer that most people want to choose for, did not become world famous for offering cheap equipment, after all. That is not to say that the price isn’t fair either, it is simply far too high for everyday small businesses and farmers to afford. Add to that the fact that leasing has some other important benefits (the tax deduction, the fact that it doesn’t affect credit, the fact that you don’t have responsibility for it becoming obsolete), and you may start to wonder why anyone would decide to purchase at all!
One thing that you do have to keep in mind, however, is that a leasing company will review your credit score when you apply for a new lease. Doing so does impact your credit rating, albeit only for a short period of time. Hence, this is one case where you cannot shop around too much, because each search will make it a little bit more difficult for you to get credit. Instead, you should ask what the average price will be for a lease without actually putting in an application. This will give you the opportunity to see how much it would cost you.