Farm Business Management

Leasing Farm Business Assets

What are the advantages of leasing?

There are four major advantages to leasing:

1. Working Within Lender Loan Limits. Large livestock modernization projects and machinery purchases can cause borrowers to exceed the lending limits of their lender. The borrower, lender, and lessor can create a financing package that will insure adequate operating credit for business growth.
2. Improved Cash Flow. Leases can cover up to 100% of the purchase price of an asset. This allows the lessee the opportunity to use business capital for operating needs and business growth.
3. Possible Tax Benefits. Leases are deductible over the life of the lease. This allows a deduction to be taken as the lease payments are made. This feature is not as important with the current tax code that allows for very rapid depreciation.
4. Flexible Asset Control. As businesses grow, family members may become involved in the operation of the business but not necessarily in asset ownership. Any or all family members might hold a lease contract. Alternatively, parents might lease a building now and eventually transfer the lease contract to another family member. Either way, the eventual ownership or control of the asset can be transferred from one generation to the next.

Leasing should be considered whenever large asset acquisitions are being considered. Even though leases are intended to stay off the balance sheet, most lenders will want to see a lease capitalized on a balance sheet. As with any financial instrument, producers need to research, shop and compare when considering a lease.