Don't Get Trapped in a Bad Machinery Lease

06:58PM May 25, 2016
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As wallets tighten, farmers are opening themselves to new options to manage their costs, such as leasing machinery.

“During hard economic times, farmers may not have as much money to buy needed new equipment,” says Ray Massey, University of Missouri Extension professor in agricultural economics. But farmers with less cash on-hand can still access new technology through machinery leasing. 

Before you lease equipment, though, you'll want to read the contract thoroughly. As you do that, here are some key questions you'll want to ask--and get answered--before you sign.

  • Who is responsible for maintenance and repairs? What repairs qualify as the farmer's responsibility?
  • What are the contract conditions? How many hours can the machine be used to be considered one lease year?
  • What is your purchase option at the end of the lease?
  • Can you terminate the lease early?
  • When are the payments?
  • What are the tax requirements?

Once you get all the information, you can make your decision based on the total after-tax cost and near-term cash flow requirements. 

“Leasing allows farmers who may have a lot of debt to get access to machinery in a way that doesn’t affect solvency,” Massey says. “But it may not always be the best deal.”

The bottom line? Don't let a cheap-sounding lease trick you into a deal that may not be right on your farm. Perform diligent research to find if leasing or buying is better for your operation.

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