Tractors and loaders; potting machines and diggers. They’re critical pieces of equipment for nurseries and landscape pros, and they come with pretty steep prices. Your operation may be due for a new, big-wheeled machine; is it worth the expense to purchase? Can you lease instead? Check out the pros and cons of each, then start shopping!
Five Fast Facts about Leasing
Avoid that back-breaking down payment
When you lease equipment, your initial financial obligation is considerably less than what’s required for a purchase. Terms generally are negotiable, but it’s not uncommon to pay one or two monthly payments upfront in lieu of a down payment; alternatively, you may be asked to remit a smaller down payment than that required for a purchase. With prices for some equipment running well north of $100,000, you may realize cost savings immediately.
There’s no equity
If you lease equipment, you relinquish one advantage of ownership: You cannot sell the piece and recoup part of your investment. Depending upon the equipment’s potential resale value, this may or may not be an advantage.
Maintenance is included
Generally, basic maintenance and some repairs are included in the cost of the lease. This doesn’t mean that there’s no cost involved; often you end up paying more over time when leasing than for a purchase. Weigh that factor, however, against the convenience of one monthly payment covering principal, interest and maintenance. Spread the cost over the term of your lease, and your budget may thank you.
Use newer equipment faster
A short-term lease terminates in, say, five or 10 years. During that time, it’s safe to say that considerable improvements in technology (or comfort, or ease of operation) will have been introduced in newer models. Once your lease is up, you can upgrade to newer equipment that’s outfitted with the most current bells and whistles.
Realize tax benefits
Your equipment lease may be 100 percent tax deductible, but because equipment and lease terms differ, be sure to consult your tax advisor or your accountant for specifics before you sign on the dotted line.
Five Fast Facts about Purchasing
Pride of ownership
Big equipment may not have that new-car smell, but the responsibility that comes with ownership encourages you to take special care with your equipment. It also makes it easier to alter or customize those machines. Odds are your operation has specific needs that may require upfitting or adjustments, and addressing those needs onsite, in your own shop, is easy when you own.
Higher upfront costs
If you’re not paying cash, the down payment to finance a piece of heavy equipment can be a deal-breaker. An initial payment of 20 percent (or more) is not unusual, and considering that many machines cost six figures plus, a lump-sum like this can cause whiplash. It may also affect your line of credit, tying up potential funds for other necessary expenses or emergencies.
Option to sell
If your needs change, you have the option to sell and upgrade — or downgrade — at any time. There’s no punitive, early-termination clause to consider, and depending on the quality of maintenance and in-house upgrades, you may be able to negotiate a fair price.
Wear and tear is on you
This can be a win-win or a win-lose situation: You’re responsible for the out-of-pocket cost of maintenance and repairs. If you maintain a shop onsite, these expenses can be minimal. Good crew mechanics can keep those machines purring for years. But if the crew’s not careful and maintenance isn’t a priority, you’ll pay the price.
Realize tax benefits
Specific tax deductions vary, depending on the type of equipment, its value and the terms of your purchase agreement, as well as depreciation. As with every major financial decision, consult your accountant.