What should be considered in taking a lease or a loan?
Are you trying to amass a building full of machinery? Or, are you trying to maximize your farming operation’s potential and profitability? If the latter is your goal, leasing could present an opportunity to assure your farm has modern equipment it needs, at the most affordable cost.
What makes leasing different?
In simplest form, lease financing buys the use of a piece of equipment or a building over a given period of time. Payments are structured to cover the value of that time, not the outright ownership of the equipment or structure. In a true tax lease, there will be a final residual (or end) value established for the leased item, upfront at the beginning of the lease. But there is no assumption you buy that asset.
Are all leases the same?
Other types of leases can be structured like conditional sales contracts where you do own the asset for a small end payment. These are considered non-tax leases.
What’s the value of a lease for me?
Lease financing enables you to acquire a depreciating asset, use all your payments as a tax deduction,* then have flexible and known options at the end of the lease. With a lease from AGRIfinancial Services at the end of the contract you will be able to:
- Return the equipment and walk away.
- Purchase the equipment outright at the pre-established residual value
- Or, potentially re-lease the equipment for another period.
What can I lease through AGRIfinancial?
You can find leases for all types of equipment, vehicles, building and facilities. Many times, operations using very specialized equipment find leasing attractive because it offers flexibility to update as technologies change. One of the fastest growing segments for leasing is in grain storage, irrigation equipment, and farm and commercial buildings. Although tax rules are constantly changing, generally a lease has allowed producers to accelerate depreciation (deductions) on a building faster than using conventional loan financing*.
Can I lease new and used equipment?
Some companies restrict leasing to new equipment only. AGRIfinancial can lease new and used equipment. Your opportunity for a great buy doesn’t have to go by the doors.
What terms are available?
AGRIfinancial Services offers farm leases for terms up to 7 years on equipment, and up to 10 years on buildings and facilities.
Are there options on payment plans?
Payment plans are customized to your needs, be it annual pay for seasonal crop growers, or monthly or semi-annual payments for those with more frequent cash flow. You can also take advantage of a “harvest lease plan”. This allows you to get the equipment you need in front of your harvest (at less cost), then adjust a payment schedule at the first of the year (when revenue has come in).
What does “residual” mean?
This term is the expected value of the asset at the end of the lease term. It is typically expressed as a percent of the original lease price. For example, leases are commonly offered with 10%, 20% or 30% residual value. If your lease purchase is $100,000, and set up on a 3-year schedule with a 20% residual, that means you could then purchase the asset for $20,000.
What does the term “lease rate factor” mean?
The lease rate factor is a ratio used to determine your leasing payment. AGRIfinancial rate factors are 5-digit decimals that are applied to the dollar amount of the item you lease (for example: A $100,000 tractor leased for 3-years with an annual payment and a 30% residual might be priced on a rate factor of .26345. That number is applied to $100,000. So the payment annually is $26,345.
What is your “Harvest Plan” lease?
Harvest time is usually a difficult time to come up with a lot of cash for down payments on equipment. That’s why AGRIfinancial offers a Harvest Leasing plan which can defer your first full lease payment until the first of the year. This program reduces your upfront, out of pocket cash when leasing. It’s a great way to get the machinery you need, right when you need it most.
Anything else I should know?
If you are transitioning an operation to a younger generation, leasing can also be a very effective tax management tool for retirement and estate planning.
You can even share a lease with other farmers, so each pays based on the percentage of use.
NOTE: Tax laws and rules on bonus depreciation and deductibility are subject to change. We always encourage you to seek the advice of your CPA or tax specialist when considering a lease.