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In the game of word association, the mention of a word
generally causes people to list other items that they have
personally connected with or have commonly heard connected
with the specific word. Take the word “lease”, for example.
Most people might promptly respond with items such as
“apartment”, “car”, or “equipment.”
 If
Knox County producer Roger Seiboldt of Victoria had played
that word association game a few years ago, he certainly
would have given an answer that included one of those three.
However, play the game with him now and his answer will be
different. Today, the word “lease” prompts Roger to think of
the new grain dryer and storage bins he has through a lease
agreement with 1st Farm Credit Services.
Roger and other 1st Farm Credit Services clients are taking
advantage of the association’s available leasing options. In
addition to grain bins, 1st Farm Credit Services offers
leasing options on machinery, equipment, or buildings.
Leasing products have been available to farmers from Farm
Credit associations for decades; but it wasn’t until the mid
1990s that the servicing of lease agreements moved from a
separate company to the local level. 1st FCS has elevated
the use of lease products since 2000 and has provided
traditional agricultural clients like Roger a lease product
that can be used in their business of farming.
A way of life
 Farming
has always been Roger’s business and way of life. He and his
family have taken great pride in making a living from the
west central Illinois fields. Roger has been accustomed to
working in partnership with other family members, having
previously farmed with his father and brother. In 1995 he
and his son, Patrick, formed a joint venture called Copley
Ag Inc. The diversified operation consists of about 2,000
corn and soybean acres and a 40-head stock cow herd. Roger’s
wife, Sharon, is also involved in the operation. “You could
say she’s the financial advisor,” he said with a twinkle in
his eye.
Through the years, Roger and his family have expanded their
farming operation and 1st FCS has been a part of it. “In
1971 I bought my first farm and got my financing through
Farm Credit,” Roger recalled. As the thirty-plus years have
gone by, the Knox County producer has expanded and
solidified his business relationship with 1st Farm Credit
Services. 1st FCS has been the place Roger has turned to for
his real estate, operating, and machinery loans, crop
insurance, and most recently, leasing products.
For most of those financial products, Roger had been the one
to initiate their use. The leasing option was a different
story; “It sort of came out of the blue.” “I had never
given any thought to leasing before,” he explained. That is
until Ed Anderson, 1st Farm Credit Services Vice President
in the Monmouth office, suggested it to his client. Roger
and Ed have developed quite a working relationship since
they first met in 1990.
“With the consolidation of (FCS) branches, the nearest
office was in Edwards and I wasn’t interested in going that
far to do business,” the 1st FCS client explained. “The next
thing I know, Ed is knocking on my door and telling me that
he was willing to come to my farm to do business.” That was
the beginning of what has developed into a positive business
relationship. “You don’t have to have brick and mortar to
provide personal service,” Ed stated. “I usually stop by at
least 4-6 times a year and we visit at the kitchen table.”
Finding the right fit
It was during one of those visits that Roger and Ed talked
about Roger and Patrick’s plans for a four-acre land
purchase, which housed an existing grain bin and a couple of
other buildings. With the expansion of their operation, the
Seiboldts had a need for
additional grain storage. The father-son team had developed
a grand design which called for a phase-in of five
additional bins. Two years ago they were ready to make their
plan a reality. Roger talked with Ed about the financing of
a 15,000-bushel drying bin and a 32,000-bushel storage bin.
“I was thinking we’d just take out a loan for the bins, but
Ed suggested we consider a lease,” Roger recalled.
First of all, Ed pointed out, a lease requires no down
payment, which would free up capital for Roger to use
elsewhere. Lease payments are generally 100% tax deductible
operating expenses, allowing Roger to write-off the total
cost at an accelerated rate. “Any lease agreement needs to
pass the IRS test, and 1st Farm Credit Services has a
product that does,” he added.
“After Ed explained it to me, I thought it was worth looking
into,” Seiboldt commented. There are tax advantages to
leasing, but those advantages need to be weighed separately
for each individual case. “Leasing is not going to be the
right option for all farmers,” Anderson advised. “The first
step, we tell our clients, is to talk with your tax expert
and determine if a lease will be advantageous to your
operation.”
Ed and Roger worked together to tailor the lease to fit the
needs of the Seiboldt’s farm business. With the flexible
lease options available, they settled on a seven-year lease
on the bins. Roger makes the lease payment an annual basis.
“We chose to make the lease payment in one payment a year
because that’s the way we have our other payments set up,”
Roger commented. 1st FCS clients can choose to make lease
payments monthly, quarterly, semi-annually, or annually.
“The one aspect we liked was that we could write-off the
entire year’s payment the first year, regardless of what
time of year the bin was constructed” Roger said.
 The
1st Farm Credit Services lease product was a match for
Roger’s operation. He and Patrick make an effort to keep
pace with current farming practices and use some of the
latest technology to help their farming operation be as
efficient as possible. Keeping pace with the latest products
in farming doesn’t stop with the production; it carries on
to how Roger and Patrick make their operation profitable.
“We keep up on the financial side of things as well,” Roger
said. “Leasing fit into our program.”
Once Roger had made the decision to lease the grain bins, he
relayed to Ed what size and type he wanted. From that point,
Ed took over coordination of the bin construction and was
the active middle man between Roger and the bin builder.
Walt Dagen, owner of Walt Dagen Construction, was chosen to
construct the dryer and storage bins. Walt has more than
thirty years experience in the bin business and he has seen
trends change in the business. “It used to be Mom and Pop
buying grain bins and they would plan several years in
advance,” Walt said. “Now, it’s an advisor of some sort and
decisions are made months ahead.”
The construction company owner has dealt with a variety of
financers and financing products, and likes the working
relationship he has developed with 1st Farm Credit Services.
Over the years Walt has gotten to know Ed and admits that he
uses him as a sales tool. “He’s a good asset for me – and a
free salesman,” Walt quipped with a big grin. “Seriously,
though, I like working with 1st FCS professionals because
they conduct their business in a fashion that’s simple,
fast, and efficient.”
Walt has built bins for farmers through a variety of
programs, including low-interest loan programs from the
government to other farm lenders. Without hesitation he
listed 1st Farm Credit Services as the easiest financer with
which to work. “I’ve worked with a lot of different lenders
and lease companies, and 1st FCS is the only one that does
the legwork on the project,” Walt said. “That makes a big
difference to me.” As was the case in Roger’s project, Walt
knew that the necessary papers were filed and that the money
for construction would be paid on a timely basis.
Open house
Roger’s bin lease was such a positive experience for all
parties involved that the trio decided to host an open house
at the storage bin site. An estimated 270 people attended
the event, which was attended by local farmers and
representatives of bin component manufacturers, such as
Behlen Manufacturing, David Manufacturing, and Nebraska
Engineering. “It was a big thing,” Walt recalled. “The
company representatives weren’t used to seeing that many
people at an open house. There were farmers interested in
how leasing works.” Based on his experiences, Walt thinks
leases are slowly catching hold in the countryside. “I don’t
think a lot of farm people really understand how leases
work,” he added. Ed felt the same way and that’s why he was
eager to participate in the Open House.
The event served as a forum for 1st Farm Credit Services to
educate other farmers about the advantages that exist with
leasing and Roger helped explain just how simple the process
was for him. Today, Roger continues receiving calls from
other farmers who are curious about the lease product and
how the process works. From a tax standpoint, Roger had no
extra legwork. He took all of the reports and paperwork to
his tax preparer and didn’t have any problems. “I had talked
with my tax man before doing the lease and I knew he thought
it was a good idea,” Roger recalled.
Farmers appear to be more interested in utilizing a lease
product for long-term assets such as bins and buildings.
“Part of that stems from the fact that most farmers
interested in new machinery have an older model to trade
in,” Ed explained. “For buildings or bins, the farmer needs
additional storage or space.”
The economics
As a reaction to the softening economy following the events
of September 11, 2001, Congress changed the depreciation
laws, allowing for a bonus acceleration of depreciation for
vehicles and equipment. This has been a big factor in the
weakened number of leases made for these items. However, the
law change does sunset and there is the possibility that the
bonus depreciation will cease. If that happens, farmers like
Roger may find leasing a more viable option for their
business.
1st Farm Credit Services professionals acknowledge that
leasing is not a blanket option for all farmers. The product
has a niche and they want farmers to at least consider the
option. That’s what Roger did and he felt that financing the
first phase of bins through a lease agreement was such a
positive one, that he opted for a lease product when the
second 32,000-bushel storage bin was constructed this year.
“We had such good success with the first lease, that we
decided to do a second one,” Roger said. “There’s a good
chance we could do the rest of the bins with a lease, too.”
Roger knows that his days of actively farming are slowing
down. The 65-year-old farmer realizes that his son will one
day assume management of the farm operation. He has already
passed along the Farm Credit product torch and Patrick is
following in his father’s footsteps in terms of looking to
1st Farm Credit Services to fulfill his farm business
financial needs.
Once the lease expires on the grain bins, Roger and Patrick
have three options. They can purchase the leased asset,
renew the lease, or return the leased assets with no further
obligation. Other farmers have used leasing as a tool for
estate planning. With a lease option, the farmer client can
opt to purchase the asset, like the Seiboldts, or the client
can pass the option onto a family member who is taking over
the farm, or another farmer who is interested in continuing
the farm operation. The leasing option gives the farm client
flexibility in choosing what the next step will be when the
lease expires.
Ed and other 1st Farm Credit Services professionals continue
to make clients aware of the leasing option when the
situation arises. “Roger has been the first repeat lease
client I’ve had,” Ed said, “but I think education is a big
key.” As word spreads in the countryside and in the coffee
shops, Ed anticipates leasing to become a more popular
choice, especially for traditional farmers interested in
long-term assets. “It starts by talking with your tax man
and seeing if it’s advantageous for your farm situation,” Ed
reminds farmers.
Meanwhile, the Seiboldt father-and-son farm team is making
use of the additional grain storage they acquired through
their 1st Farm Credit Services leasing agreements. “I took
Ed’s word for it when he said it was a good choice for me,”
Roger said. “He was right.” As the game of word association
is played on an indirect basis in the days to come, Roger
hopes more farmers will find it beneficial to choose the
lease path he’s chosen. Then, when the word “lease” comes to
mind, other farmers will automatically think of “grain
bins”, “buildings”, or “equipment” -- and 1st Farm Credit
Services. |
