The volume and expense of managing your construction business’ equipment fleet can be intimidating. The heavy machinery required at most construction sites is an investment worth significant consideration when developing your strategic plan. Making an educated decision on how to finance equipment will benefit the company’s long-term goals. Many companies find that a combined strategy of equipment leasing and equipment loans helps them make the most cost-effective choices.
Equipment Lease
Leasing machinery allows you to finance equipment with a lower down payment. You negotiate a term for the lease, but when the lease has ended, you do not own the equipment. Frequently, you can build terms into the lease that allow you to purchase the equipment or upgrade to a newer model at the end of the contract.
Many businesses negotiate maintenance agreements into their lease terms. While these costs are built into the financing agreement, it ensures that timely maintenance is performed which extends the life of the machine. Maintaining the equipment makes great financial sense for both parties. Should you choose to purchase the machine at the end of the term, you know that required maintenance has been performed. The vendor knows the maintenance history of the equipment and can use that as a sales tool if the equipment is returned to them at the end of the lease.
Equipment Rental
Renting equipment is very similar to leasing, except for the term of the agreement. Rentals are very short-term – usually no more than a year. It should be considered for highly specialized equipment required for infrequent projects. You may also choose to rent if one of your existing machines is undergoing repairs or maintenance. Renting a similar piece of equipment allows you to continue working on projects for your customers.
Equipment Loan
Most often seen as a traditional loan, businesses will take out a loan to finance standard equipment in their fleet. Interest rates remain lower, as the equipment you are purchasing serves as collateral on the loan for the bank. At the end of the loan period, the business owns the equipment and can continue to use it for its full life expectancy.
Some businesses choose to sell their used equipment and use that revenue as a down payment to finance equipment that is new to the company.
Purchasing construction equipment can be costly for the business. Using a combined system of acquiring equipment can provide a cost-effective strategy for your business.