So, you’re looking at that new (or used) tractor, baler or UTV – what’s the best way to finance this purchase? You have choices, in fact many choices. Let’s consider whether you want new or used equipment because the financing picture changes, based on this decision.
We’ve all been enamored with new paint and new equipment. But, I try to do a simple cost/benefit analysis when making the new vs. used purchase decision.
• How long will I keep the item?
• Will it be used lightly or heavily?
• Will the purchase help offset my taxable income?
• Is this a need or a want?
• There are warranty considerations
• Will I and my operation be better off with this purchase?
Clearly, we want to make the best decision based on a reality check. However, it’s also fine to go for the new paint or even satisfy the “want,” provided you’re OK with your financial position afterwards.
Financing Options – Here’s some considerations:
• Captive (On-Site) Financing. This concept involves “finance it where you get it.” Interest rates and terms are typically set and less negotiable since your dealing with a process that leverages technology.
• Traditional bank/lender loans are another good way to attain financing. Your bank can use your business history and your relationship to get your loan in a quick and efficient manner. Your banker or lender can customize or tailor your equipment loan to match up with your farm income stream and use existing collateral to cover the new purchase (if 100 percent financing is needed).
• Line of Credit Financing is another option. However, if the LOC was initiated for operating purchases, use caution if using this as an equipment loan option. Sometimes, you can use a LOC to cover then purchase for a short period of time, knowing that you’ll move the equipment to a longer, more appropriate lending vehicle down the road.
• On-Line financing – It’s more “hands on” but it is available.
• Lease vs Purchase? Books have been written about this financing decision. My fallback position is “consult your accountant.” Generally, a lease can make sense if you’re going to use the equipment heavily and replace it on a regular basis. Alternatively, if you keep equipment for longer periods, a purchase or purchase/trade in option may best serve your needs.
Whatever you decide, don’t dismiss your “gut feeling” about the transaction. When it’s all said and done, you’ll want to be happy with the decision after-the-fact. No one enjoys buyer remorse.