Loan or Lease?
No matter if you are a full- or part-time farmer, agricultural producers have a number of capital needs to make their operations successful.
While often overlooked, leases can be a valuable option by providing tax advantages, little or no down payments and lower monthly payments. Oftentimes, the real value for a farmer lies in the use of the asset and not the ownership. But conventional loans also have their benefits, most notably being that the asset is owned and can be reflected on your balance sheet. Other benefits of loans and leases include:
Benefits of a loan
- Payment timing and terms are structured to fit your operation
- Owned facility/equipment are your assets
- Asset is depreciated on your tax return
- If you are an Horizon Farm Credit borrower, patronage can be earned based on the amount of interest you pay
Benefits of a lease
- Working capital and your operating line is preserved
- Cash flow is improved with lower payments
- Tax benefits are maximized with accelerated write-off
- 100% financing is available
For your next equipment or building need, in addition asking your lender about a conventional loan, ask about a lease as well.
Depending on your unique situation, one option may be more favorable than the other, and you may want to consult with your accountant or other tax advisor to get his/her opinion, too.