When thinking of adding a new asset to your farming business, it might get overwhelming to decide between leasing equipment and purchasing it. Both the methods have their own benefits and cautions. Hence, it is important to select the option that suits you the best.
Before coming to a conclusion, it is essential to consider both aspects and decide accordingly. Here are some points of difference between buying and leasing agriculture equipment:
- First things first, purchasing the equipment requires a huge investment whereas leasing doesn’t involve a lot of costs.
- Secondly, when it comes to leasing, it is easy to change the equipment if it becomes obsolete. On the other hand, changing purchased equipment can be a hectic procedure.
- Purchasing agriculture equipment gives you ownership which helps in building full equity which is not possible with leasing.
- Buying equipment is suitable for long term projects and use whereas leasing is good for short term contracts.
- There are no limitations on the utilization of the asset in owned equipment while there can be limitations on usage in leased equipment.
When to lease agriculture equipment?
Leasing has numerous advantages over buying. But, it has its own limitations. It is crucial to understand your business situation and capabilities before selecting.
If you are just starting off and have limited capital, then go for leasing. It will help you in maintaining the cash reserves. Moreover, leasing is ideal if you require the equipment for a short term period with limited usage.
One of the major advantages of leasing is that you can stay updated with the technological advancements in assets and hence, improve your effectiveness and efficiency. If you face high competition, then leasing can provide you a competitive edge without excessive expenses.
Both, leasing and buying can be beneficial for a business depending on the situation. It is always a good idea to consult a finance manager. If the allocation of resources is done right and thoughtfully, then the cons of both can be covered. So, do your calculations, allocate the resources, and set your budget.