INSIGHTS
Helping customers lower payments and preserve capital
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INDUSTRY
INSIGHTS
Leasing Strategies for Managing Tight Profit Margins
Helping customers lower payments and preserve capital
by AgDirect ®
As producers navigate high interest rates, lower trade-in values and rising equipment costs, leasing continues to be a strategic option for managing cash flow and equipment decisions.
“ Leasing can be used to manage deteriorating used equipment values, especially when working through trade-ins with little or no equity,” says Chris Stout, AgDirect territory manager in Arizona and California.“ It also helps manage rising equipment costs by allowing customers to pay for the‘ use’ of the equipment rather than taking on the risk of ownership.”
Other leasing benefits include reduced upfront costs compared to a loan, and predictable payments, which can be beneficial for cash flow and balance sheet management during periods of margin pressure.
Key Questions When Considering Leasing vs. Loans or Cash
When helping customers evaluate whether to lease, take out a loan or pay with cash, Stout suggests asking a few key questions to ensure the financing option supports their operational and financial goals.
• How close are they to planting or harvest?
• Do they need to conserve cash heading into the season?
• Is it more cost-effective to buy the machine or pay for its use through a lease?
• Which option will keep the customer in warranty for the duration of use?
Evaluating Lease Types and Terms
AgDirect, a leading equipment financing program offered by participating Farm Credit Associations, offers multiple lease types to help customers preserve working capital, manage cash flow and take advantage of potential tax benefits.
12 EQUIPMENT DEALER MAGAZINE • U. S. EDITION
FPO – Fixed Purchase Option
• Considered a true-tax lease
• Customer writes off lease payment, doesn’ t depreciate asset
• Also known as a“ Walk Away Lease
• Customer has the option to purchase, trade or surrender( walk away) asset
Best Suited For: Customers who want the“ use” of an asset rather than ownership and prefer to roll into new equipment at the end of the term instead of trading in.
PRO – Purchase or Renew Only
• Considered a true-tax lease
• Customer writes off lease payment, doesn’ t depreciate asset
• Customer has option to purchase, trade, or renew lease( no walk away option)
• Residuals are 5-10 % higher than FPO lease
Best Suited For: Customers who are looking for lower payments than an FPO, and plan to purchase, refinance or renew at the end of the lease term. This lease type may also appeal to customers seeking similar tax advantages to an FPO.
PUT – Purchase Upon Termination
• Considered a conditional sales lease
• Customer is obligated to purchase or trade asset( no walk away or renewal option)
• Customer takes depreciation on asset, doesn’ t write off lease payment
• Residuals are 5-10 % higher than FPO lease
Best Suited For: Customers who are looking for lower payments than an FPO, and plan to purchase, refinance or renew at the end of the lease term. This lease type may also appeal
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to customers who want to depreciate the asset on their balance sheet.
Additional Leasing Strategies and Support
AgDirect also offers creative financing options, such as purchase leasebacks, to help customers recapture working capital.
“ When a customer pays cash for machinery but later could use the capital required to buy the equipment, we can purchase it from the customer and lease it back to them with a purchase leaseback,” Stout explains.“ It’ s a great strategy for year-end planning that allows customers to spread out the need for capital and use it in their operations longer.”
Resources like the AgDirect leasing calculator along with expert support from territory managers and the internal sales team are available to help dealers and their customers evaluate their leasing options.
“ With equipment pricing way up, leasing can be a smart strategy to help your customers lower their payments. At the same time, used equipment values are down, so if a customer has little or no trade equity, leasing may be a more attractive option than purchasing,” says Stout.
“ Interest rates are still high compared to three to five years ago, and leasing can minimize interest expenses while giving customers full access to the equipment they need for only the hours they use it. And because leasing typically requires less cash upfront, it allows customers to preserve capital for other areas of their operation.” EDM
Apply online, check rates, quote payments and compare options at agdirect. com or use the free AgDirect Mobile app available for download from the App Store and Google Play *. Learn more about AgDirect equipment financing by locating the nearest AgDirect territory manager or contact the AgDirect financing team at 888-525-9805.
* Your mobile carrier’ s messaging data rates apply. The App Store is a service mark of Apple, Inc. Google Play is a trademark of Google, Inc.