Larry Ratz’s combine is on its last legs.
But the London, Ont. cash crop farmer has vowed to keep it going long enough to weigh every option before deciding how to replace it.
To lease or to buy ? It’s a question many farmers struggle with, but few manage to pin down an easy answer.
“Every time you need a new piece of equipment there are a lot of options and I find farmers don’t always have a good handle on what it’s costing them,” said Ratz.
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Ratz teaches a machine management course at a London, Ont. college. He said he realized farmers have a hard time comparing the costs of leasing in relation to buying.
Depends on situation
It prompted him to develop a computer program that helps crunch the numbers to determine which option costs less for individual circumstances. Now he markets the program to farmers.
The biggest factor is usually the bottom line, Ratz said.
“You look at all the options, but it comes down to whatever is going to be cheaper.”
On first glance, ownership looks like the more attractive option, but Saskatchewan farm management agrologist Morley Ayers said farmers need to keep in mind factors other than cost.
A farmer close to retirement might be better off leasing a new tractor even though he could afford a down payment.
“Upfront costs are less than ownership and you won’t have to look at selling it in a few years.”
On the other hand, there are pitfalls to leasing, Ayers said.
If you own a machine, you can always repair it for another year but at the end of a lease, a farmer is faced again with the same question of whether to lease or buy.
It is an easy trap to fall into, he said.
“You get into a lease if you feel you have a cash flow shortage but after three years, you may still have one,” Ayers said.
Either way, more farmers consider leasing as an option, said Ted Ford, a farm management specialist with Alberta Agriculture.
“A lease is another way of financing, or another way for a company to move their equipment,” he said.
There are also tax implications farmers should be aware of, Ford said.
Most farmers assume lease payments can be claimed as a full expense every year, but Ford said that’s for Revenue Canada to decide. With an operating lease, farmers can write off the full payments, but a capital lease that includes a buy-out option could be viewed differently.
A recent influx into the market of leasing companies not connected to a particular manufacturer is a trend that will likely continue, Ford said.
And that’s good news for farmers, he said.
“My advice is to shop around.”
Saskatchewan and Alberta provincial agriculture departments have information and programs on their internet websites to help farmers compare the costs of leasing and owning farm equipment.
