Construction equipment

Leasing or financing: what is the right option for construction equipment?

From backhoes to bulldozers, construction companies need equipment that is reliable, up-to-date and capable of operating on the job site. Heavy machinery can be expensive to purchase and can tie up significant levels of capital if purchased directly. For this reason, more and more companies are now renting construction equipment in order to get the machines they need at an affordable price.

Just about any equipment or machinery can be financed or leased in the construction industry and deciding what is the right approach for your business will be an important decision you will need to make. Each has clear advantages and disadvantages, and leasing or financing your construction equipment will depend on a range of factors. In this article, we’ll go over both leasing and financing so you can determine which financing method is right for you.

Rental of construction equipment

Leasing construction equipment means you have full access to use and operate machinery without owning it. After the end of the lease, you will have four options to choose from: re-lease the machine at the new fair market value price, extend the lease at the new fair market value price, purchase it outright, and become the owner of the equipment, or return the equipment and acquire an improved model. The flexibility offered by leasing is one of the factors that drives construction companies to lease their heavy construction equipment.

Advantages of renting

When it comes to renting your construction equipment, there are a number of advantages over purchasing equipment up front. These include:

  • The possibility of renting the most recent equipment. This is especially useful in industries where technology needs to be upgraded regularly.
  • No big upfront payments. This allows you to structure your financial position effectively, allowing you to effectively allocate funds to foster growth.
  • Leasing has many tax advantages that can help you financially and a qualified accountant should be consulted before making a decision.
  • Low monthly payments. You only pay for part of the equipment, so the payouts are lower.
  • Flexible end-of-term options. You have the freedom to choose what you want to do with the equipment after the rental period is over.

Financing of construction equipment

Equipment financing is essentially a loan. Usually used for the purchase of professional equipment, these loans involve periodic payments over a fixed period. When paid in full, you receive full ownership and title to the equipment you used. An equipment loan may also impose a lien on additional business assets or require a personal guarantee before receiving the equipment.

Benefits of financing

Financing construction equipment offers slightly different advantages compared to leasing:

  • With construction equipment financing, there is an added level of security as you won’t have to worry about unforeseen costs that have to be paid after the completion of a lease.
  • There is greater funding flexibility with early redemption options and fewer penalties.
  • For a large business with good cash flow, the interest expense on finance may be lower than for equipment rental.
  • While financing for construction equipment can involve a risk of depreciation, if your equipment maintains its value, it can be of benefit to your business.
  • When financing, you can usually charge incidental costs such as installation and shipping costs to avoid any interest in shipping costs.

Commercial building with a multi-line lease

Loenbro, founded in 1998 in Montana by brothers Paul and Jon Leach, today has more than 1,000 employees working in the oil and gas, manufacturing, mining, power and of utility construction in 20 states. The rental of a fleet of equipment including fast melting machines, pipeline trenchers, side booms, backhoes, rollers and more in 2018 accelerated the growth of the entrepreneur.

“Getting the right equipment for Loenbro means we can be on the cutting edge and be able to do something more efficiently,” says Paul Leach. “As with the fast fusers, we are able to fuse poly pipe much faster than the competition. You can get off the line and do it from the cabin. Whatever the weather, you don’t mind. And our efficiency has increased dramatically.

Choosing an independent lessor and independent from suppliers simplified the process of acquiring Loenbros for the one-contact fleet.

“The more I can narrow down the scope of the people I work with, the more efficient I can be and the faster we can find solutions for customers,” says Chase McQuillen, Equipment Manager at Loenbro.

Understanding the key differences associated with each equipment financing option is crucial to ensuring you get the deal that best fits your machine application. While it may all seem confusing, talking to industry experts can help itemize the benefits of each option in every acquisition.

Tom Haug is Meridian’s Construction, Material Handling and Manufacturing Manager.

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