The Business of Agriculture: Introduction to Leasing
By Karen Macdonald
The Business of Agriculture series covers finance, accounting and other business topics to help both beginning farmers and ranchers as well as experienced operators.
It’s no secret that agriculture is a capital-intensive business, with land, buildings, vehicles, equipment, livestock and inputs all adding to the price tag. Especially for beginning farmers, the amount of capital needed, both upfront and on an ongoing basis, can seem insurmountable. One way to reduce this capital requirement is to lease rather than buy.
Agricultural businesses can lease a wide variety of essential components for their business: farm and ranch land, facilities like greenhouses and barns, field equipment like combines and tractors, processing and packaging equipment, grain storage facilities, vehicles, and even robots.
When you lease, you make periodic payments for the use of whatever it is you’re leasing. As with renting an apartment compared to purchasing a home, at the end of the lease you return possession of the asset to its owner (although in some cases, you may have the option to purchase the asset).
Based on what you’re leasing, the terms of your lease can vary, and some can even be set based on your preferences:
- Length of lease
- Frequency of payments
- End-of-lease purchasing terms
- Type of lease (different types of leases have different accounting implications, so work with your accounting and tax consultants to decide which is right for you)
In addition to typically lower up-front costs, leasing can deliver a number of business and financial benefits: it can improve your cash flow, help you avoid equipment obsolescence by “upgrading” equipment more frequently than you would if you purchased it, free up capital to invest elsewhere in your operation, and deliver tax advantages.
If you think leasing might be right for you, be sure to talk to your tax consultant, and also talk to your local Farm Credit representative about leasing options available through Farm Credit.