27 January 2024, US: Equipment is likely one of your largest farm assets and plays a critical role in maximizing your operation’s profitability potential.
But when equipment isn’t performing as it should, you’re faced with a tough decision: repair or replace?
Every situation is different, so it’s important to evaluate the pros and cons of each option to make the most economical decision. Continue reading to learn about critical considerations and more information that may help guide your decision-making.
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Repairing Farm Equipment
Depending on the age and expected life left in your machine, repairing existing equipment may be more cost-effective. Instead of investing dollars in new equipment, you can leverage that capital in other ways, such as purchasing more land, building farm infrastructure, or investing in crop inputs to maximize productivity.
But, if equipment downtime and waiting for parts and service becomes a recurring trend at your operation, it may be time to consider equipment replacement. For example, if your tractor has more than 12,000 hours of use, it’s generally accepted that replacement may be more cost-effective than repair.
Pros of Repairing Farm Equipment
- Lower cost than buying new equipment
- Equipment and technology familiarity
- Extra capital to invest elsewhere in your ag business
Cons of Repairing Farm Equipment
- More equipment downtime and lost efficiency
- Aging equipment with higher operating costs
- Older technology may have limited capabilities
- Added risk
Replacing Farm Equipment
Deciding to replace farm equipment requires upfront planning and analysis, as it’s a significant investment that will have lasting consequences for your operation.
Iowa State University recommends considering equipment replacement when the annualized total cost of owning and operating the machine begins to increase. That happens when repair costs start to increase faster than depreciation and interest costs decrease.
While this rule offers a general guideline, replacing equipment isn’t an exact science. Market conditions and long-term operational goals should also weigh into your decision.
If you’re replacing a machine, you’ll have to decide whether to buy used or new. You can also opt to lease equipment. Depending on your situation, financial incentives, such as flexible loans or dealer programs, could make purchasing equipment a more attractive option than repairing.
Replacing equipment is a complex decision. Consider added efficiencies, long-run costs, capacity needs, tax implications, and future financial obligations as you evaluate options.
Pros of Replacing Farm Equipment
- Lower maintenance and repair costs
- Less machine downtime; higher productivity efficiency
- Newer technology, equipment capabilities, and higher capacity
- Warranty coverage
- More energy/fuel efficient; lower operation costs
- Potential tax benefits
Cons of Replacing Farm Equipment
- High fixed cost
- Less capital to invest in your operation
- Potential limitations when making repairs; some repairs may need to be made at a dealership rather than being done independently
- Learning curve to acclimate to new equipment and technology
[Use the “Equipment Purchase Checklist” as you consider a farm equipment purchase.]
Farm Equipment Loans from FBN® Finance
FBN Finance understands that reliable equipment is critical for every successful farm operation. Our Finance team includes industry experts with hands-on ag experience who can help you purchase or lease the equipment you need to improve operational efficiency — without straining your current budget or cash flow.
When you work with FBN Finance, you can expect a seamless and streamlined online application process and customized service from a dedicated loan advisor. With great rates and flexible repayment terms, our team applies a Farmers First® mindset to help you get the equipment you need to run a successful ag operation.
Some highlights of our equipment loan program include:
- Terms of up to seven years
- Competitive interest rates
- Flexible payment terms
- Wide variety of financeable equipment
If you’re interested in learning more about farm equipment loans, the FBN Finance team can help explain the application process and ensure it’s the right fit for your operation. Click here to get started.
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