There’s no doubt that farm equipment is one of the most expensive investments out there, besides the land itself. But is it better to buy or finance your Canadian farming equipment?
Canadian farmers will utilize their farming equipment for years but there will always come a day when the technology is no longer performing as well, or they need to upgrade to keep up with the competition.
In this article, we will explore the benefits of financing your Canadian farm equipment and why so many farmers today are choosing to lease or finance their equipment instead of buying it.
The cost of buying
As we mentioned, farming equipment can be very expensive. A utility tractor can cost upwards of $70,000 which is a huge out-of-pocket expense if you decide to use your capital and buy. Instead, you can preserve your capital and choose to lease or finance your heavy equipment.
The benefits of financing equipment for your Canadian farm
Leasing and financing are less expensive ways you can obtain brand new equipment. It is way better for your cash flow and it’s an affordable strategy to get new machinery that will help improve your overall production.
By protecting your cash flow you can afford to get the equipment you need whether that be one machine or multiple machines to help increase productivity and boost your revenue.
Be sure to find out the maintenance, refurbishment and any repair costs of the farm equipment when considering whether to finance or buy. With financing, all repairs may be carried out by the dealership, removing any additional costs that come with buying. You should also keep in mind that you don’t have to finance new equipment, you can finance used equipment as well.
Should you buy or finance farm equipment?
Here are three things you should think about or do when contemplating whether to purchase or finance your next piece of Canadian farming equipment.
1. Assess your business
Before deciding to finance farming equipment you need to assess the performance of your business. Take a closer look at how your current equipment is performing, and factor in the costs of fuel and contractors if you were to upgrade the equipment.
When planning to finance you should analyze your return on capital employed (ROCE). The ROCE refers to the profitability of a business, its earnings before any interest or tax is applied, divided by the capital employed. This calculation looks at the efficiency of your assets which will allow you to make a strong comparison of how your farm is performing against its competition.
From there you can determine how valuable an upgraded finance agreement could be for your business and introduce new and more advanced equipment.
2. Create a business plan
Now that you know more about the performance of your business and where it stands amongst your competition, you can now create or update your business plan.
Your plan should take into account the time and money it will cost for equipment to be repaired or replaced and any potential business restructuring that could affect your financing.
The plan should include the depreciation of your farm equipment and machinery which will also help you discover which machinery you will need and when.
3. Consider your funding options
By maintaining a certain level of working capital, you can help your business perform consistently. When you buy farming equipment outright, you jeopardize your capital and increase the risk of having to borrow or being unable to fix broken machinery.
Ready to finance farming equipment?
The first thing you should do is get advice from industry experts. The Blue Capital team has been helping Canadian farmers finance equipment for the past 15 years and there is no one better to ask about financing. We offer many financial services and can help you with quick approval with zero down payment options in many cases and competitive interest rates. We have multiple leasing options and can help you find the right financing for your business so that you can utilize new farming equipment to improve your productivity and achieve your business goals!