Dangers identified in zero equity positions

27 Nov, 2000 03:01 PM
Comments
0
 

MANAGEMENT of tough seasons, combined with a tight economic squeeze, can be eased by a return to conventional thinking on machinery equity. Just how farmers survive in these times is in part related to how they have managed their equity, according to Case Credit's Richard Lewis. "Traditionally, the rural sector bought all their equipment and plant," Mr Lewis said. "The sector was very conservative, seldom moving into debt. This position has changed in recent years, which to some extent is a good thing. "Unfortunately, however, the pendulum has swung a bit too far with some farmers opting for 'zero equity'." Zero equity effectively means farmers rent equipment and plant. They make regular payments on a machine of which they own no part. "The concept of renting machinery has its origins in the construction and mining industries and it suits these industries well," Mr Lewis said. "By and large, the bottom line is known in mining and construction from one year to the next. This is a far cry from farming, however, where incomes fluctuate according to unpredictable factors such as the weather. "By adopting the rental/zero-equity approach, farmers are short changing themselves of a vital financial management option. They may find everything is fine when times are good, but when times are tough (like right now) it's a very different story. "Essentially, they have left themselves no slack ‹ there is no fat to cut. The farmer who has made equity payments towards his machines, on the other hand, does have room to move." So concerned is Case Credit about the risk that rental-only options pose for rural customers, that it is not one of the packages they routinely offer, or recommend. "We much rather see customers have some equity in their tractors. Then, if times get difficult, we can then help out our customers by letting them skip some payments. We know the value of our products so we are able to offer this level of customer support," Mr Lewis said. And achieving equity does not necessarily mean paying a lot more; in fact in some cases, moving to ownership of a tractor can prove cheaper than renting. "Farmers have been caught up in the desire to minimise tax at all costs, but we say: 'take a second look, because that cost may be just too high'. In difficult years, it may well be the little bit of equity in machinery that will separate the farmers that swim from the farmers that sink," he said. pMore information: Richard Lewis, Case IH, (02) 9673 7777.

COMMENTS

light grey arrow
I'm one of the people who want marijuana to be legalized, some city have been approved it but
light grey arrow
#blueysmegacarshowandcruise2019 10 years on Daniels Ute will be apart of another massive cause.
light grey arrow
Australia's live animal trade is nothing but a blood stained industry that suits those who