In the current climate, almost every farmer will agree that it’s tough. Keeping their farm producing and machinery operating is make-or-break for many. That’s where tractor leasing can help.
Leasing is a real game-changer for farmers who want to upgrade their tractors without emptying their wallets. Let’s face it: buying a new tractor outright costs an arm and a leg, and the prices just keep climbing. But with leasing, farmers can get their hands on the latest agricultural machinery without forking out a hefty upfront capital investment.
With advancements in farm equipment, leasing allows farmers to benefit from features such as GPS systems for precision farming and eco-friendly engines that can save thousands of pounds on fuel.
It’s not just about saving money, though. Leasing helps farmers stay on top of the tech game, too. That’s crucial when their clients (supermarkets, restaurants, dairies, etc.) are demanding better produce at rock-bottom prices.
And the best part?
Leasing is very flexible and scalable. Farmers can mix and match their lease agreements to fit what they need, scaling up or down as the situation demands. It means they can handle whatever workload comes their way as and when the markets shift.
Advantages Of Tractor Leasing
Tractor leasing has been a game-changer for many farmers. The top benefit is undoubtedly the cost-saving aspect.
Purchasing a new tractor with all the latest bells and whistles can cause a financial headache – often requiring a large upfront investment that many smaller farmers struggle to afford. A tractor lease agreement allows farmers to access the latest tractors and use the equipment quickly without worrying about the price tag.
By spreading the cost over the lease term, farmers can better manage their cash flow and, if necessary, allocate resources/funds to other critical parts of their business.
On top of that, the lease agreements more often than not, include maintenance and repair services (and insurance) – further reducing the financial burden on the farmer. This means they know how much their monthly outgoings are without worrying about unexpected repair bills.
Another key advantage of tractor leases is the increased flexibility they provide. Changing customer demands make it challenging to maintain a static fleet. Leasing allows farmers to scale their operations up or down as needed to match their current requirements.
Finally, no one likes paying taxes when they don’t have to. In many cases, the monthly rental payments can be deducted as a business expense, giving farmers additional tax savings that can be reinvested into other areas on the farm.
This can be really helpful for those farmers operating on tight margins.
Access To Modern And Efficient Tractors
It seems like big manufacturers such as John Deere, New Holland, Massey Ferguson, and the like launch new models with more gadgets and better engines every year.
For some struggling farmers, having access to more efficient equipment is crucial to maintain some form of profit. Leasing these tractors allows farmers to upgrade their machinery and incorporate cutting-edge technologies without the hassle of selling their old agricultural machinery and equipment to free up cash.
It can also reduce operational costs and improve the overall sustainability of their farms.
With farm carbon footprint audits becoming more and more of a necessity, leasing the latest tractors can help lower their farm footprint and aid farmers when applying for sustainability grants or funding.
Tractor Leases Reduce Downtime
Tractor leases provide financial benefits and contribute to increased productivity and reduced downtime for operators. When farmers own their equipment outright, they have to manage maintenance and repairs themselves, which can lead to unexpected downtime.
However, with leasing, the responsibility for maintaining and repairing the equipment is typically shared with the leasing company. This ensures that their tractors are well-maintained and ready for use at all times.
By outsourcing these tasks, farmers can focus their efforts on their core farming activities, minimising time (and money) spent on equipment upkeep.
Furthermore, many tractor leasing agreements include clauses for immediate replacement or repair of equipment in the event of a breakdown. This ensures that farmers can maintain their productivity and avoid costly delays, increasing yields, reducing waste, and improving overall profitability.
Different Types Of Tractor Lease
In simple terms, tractor leasing is a financial arrangement in which a farmer (or a farming business) rents a tractor for an agreed-upon period instead of purchasing it outright. At the end of the term, the lessee (the person leasing the tractor) usually has options: renew the lease, return the tractor, or potentially buy it.
We looked at the most common types of leases for tractors:
Operating Lease
An operating lease is the simplest type of lease for a tractor. The lease specifies the model, lease period, and monthly rental fee (which includes VAT). At the end of the agreed rental term, the tractor is returned to the lender.
With an operating lease, the monthly payments can be offset as a business expense against any taxable profits, therefore reducing any corporation tax.
Additionally, using leasing to secure a tractor instead of borrowing, for example, a business loan of £100,000, will not show a large debt on your balance sheet. This will help if you need to seek additional business finance for other operational purposes.
Contract Hire
Similar to an operating lease, a contract hire agreement includes the lease period and monthly rental fee. However, it also includes maintenance and servicing costs built into the fixed-term monthly fee.
Contract hire offers farmers additional peace of mind, knowing that they will not have unforeseen expenses over and above the agreed fee, helping them plan their budgets.
Certain hire agreements will enable you to upgrade to newer machines during the agreed term.
Once again, at the end of the contract, the tractor is returned to the lender, or the contract is extended. Monthly payments can be treated as a business expense for tax purposes.
Finance Lease
A finance lease is a bit different to the others above. With a finance lease, you are effectively paying monthly instalments to the lender (who owns the machine) with the option of buying it from them at the end of the agreement.
However, with this type of lease, you are fully responsible for the machinery. You will have to arrange and pay for the service, and if it breaks down or becomes damaged, you will be responsible for the repairs.
If, for any reason, the tractor is not usable for some time, a finance lease agreement will not cover the cost or provide the use of a replacement machine.
Unlike the other two leases above, you will not be able to upgrade to newer machines during the term. Tractors on a finance lease are also treated as an “asset” on your business balance sheet and will be seen as a “depreciating” item for accounting purposes. Your accountant will be able to advise if you can also claim any VAT back and claim tax on the monthly lease payments.
At the end of a finance lease, farmers can opt to pay any outstanding fees to secure full ownership and keep using the tractor or sell it.
Choosing An Agriculture Leasing Company
When exploring renting an asset, it’s essential to carefully evaluate the various leasing companies (and finance brokers) to find the best fit for their needs.
Farmers should look for a provider that offers tailored lease agreements, allowing them to adjust the terms and duration to suit their specific requirements. This could include the ability to increase or decrease the number of tractors in the fleet, as well as the option to extend or terminate the lease early if necessary.
And of course, finding one who can offer the best rates/tractor leasing deals in the UK.
Another factor to consider is the leasing company’s reputation. Many farmers believe that dealing directly with the big manufacturers will offer them the best service. But that’s not always the case!
A farmer with a lease for one of two tractors may discover, to their detriment, that they don’t receive the same first-class service as those who have leased several tractors from a main dealer. That is why brokers specialising in tractor finance can, more often or not, provide better rates and service.
Farmers should research the company’s track record and customer satisfaction reviews to ensure that they are using a reliable and trustworthy supplier.
Arranging Tractor Leases/Finance
The process of arranging a finance agreement can vary from company to company. In general, the process is as follows:
1. Assess companies/brokers
Farmers should first research and compare different leasing companies and brokers (such as Evangate FS), evaluating their offers, terms, and customer reviews. This will help them identify the provider that best aligns with their needs and budget.
The farmer can begin the application process once a suitable leasing company has been selected.
It’s worth noting that using a broker who knows the agricultural industry can often take the hassle out of the process. The broker will know which lenders are offering the best tractor lease deals, negotiate lower monthly payments on your behalf, and understand what documentation is required.
PS. Make sure they are regulated by the Financial Conduct Authority as well.
2. Gather documentation
The next step is to gather all the necessary financial information and documentation. This may include recent tax returns, financial statements, and proof of income or assets.
Leasing companies will typically review this information to assess the lendee’s creditworthiness and determine the appropriate lease terms.
3. Complete the application
Finally, farmers will need to complete the application form, either online, at a physical meeting, or with the help of a broker.
The leasing company may request additional information or documentation during the application review. It’s essential for farmers to respond promptly and provide all the required details to speed up the approval process.
Once the application is approved, the farmer can work with the leasing company to arrange for the delivery of the tractor(s).
4. Delivery and training
Many major leasing companies who Evangate FS deal with will deliver the tractor(s) to the farm. They will offer expert advice and training so the farmer understands how to operate the machinery efficiently and get the most out of it.
Common Misconceptions About Leasing
Despite the growing popularity of tractor leasing, some common misconceptions can still deter farmers from exploring this option. One of the most prevalent misconceptions is that leasing is more expensive than outright purchasing a tractor.
In reality, tractor leasing can often be a more cost-effective solution, especially when factoring in the hidden costs of owning one, such as maintenance, repairs, insurance, and the asset’s depreciation.
By spreading these costs over the lease term, farmers can manage their cash flow better and avoid the significant upfront investment required for an outright purchase.
Another misconception is that leasing limits the farmer’s flexibility and control over the equipment. On the contrary, tractor leasing offers greater flexibility, allowing farmers to adjust their fleet size and upgrade to newer models as their business needs change.
Additionally, some farmers may believe that leasing means they will never own the tractor outright. However, certain leasing agreements include the option to purchase the tractor at the end of the lease term (as discussed above), giving farmers the flexibility to either continue leasing or transition to ownership if it aligns with their long-term goals.
Finally, some people think that the lease terms must be 3 years long. This is incorrect, as short-term leases for periods of 3 months for seasonal projects are available, moving up to medium-term leases of 12-18 months and long-term leases of 3 years or more.
Leasing Options Summary
After reading the information above, it’s easy to see why tractor leasing is becoming so popular in the UK. In short, here are the reasons why:
- Cost efficiency & tax benefits
- Predictable monthly payments
- Access to the latest machinery/technology
- Quicker service from local tractor leasing companies
- Maintenance and servicing included
- Reduced downtime & improved productivity
- Flexibility to scale up or down fleet
- Tailored lease agreements for short to long-term work
- End of term options available to return, upgrade or buy tractor
- Government incentives for sustainability and subsidies for equipment
Next Steps
From the cost-saving advantages to the increased flexibility and access to modern equipment, tractor leasing provides farmers with the equipment they need to thrive in today’s uncertain market.
In the end, the decision to lease or purchase a tractor should be based on a thorough assessment of your specific needs, financial situation, and long-term goals to grow your business.
Leasing might only suit some; it might be simpler to unlock the potential in existing equipment through asset finance to secure a better deal.
That is why we always recommend speaking to one of our finance brokers so we can understand your personal circumstances. In most cases, we can find a more cost-effective lease or funding solution for you.
