Equipment Financing: Best Business Loan OptionsMarch 11, 2022
4 Tips on Truck FinancingMay 6, 2022
Regardless of the tool needed for the job, construction firms must have equipment that is:
- Up to date
- And can put in the proper performance
Combined with heavy machinery being expensive to buy and demanding significant amounts of capital, companies have now turned to leasing construction equipment. This move allows starting up construction firms to get the machinery they need at an affordable price.
Any piece of equipment or machinery can be financed or leased, but each firm is tasked with making the big decision of what to do. Each method has pros and cons, and there are several factors that determine whether to lease or to finance.
Leasing Construction Equipment
When leasing construction equipment, the lessor has full access to using and operating the machinery without outright owning it. After the lease is over, there are four options for the firm to choose from:
- The machine is leased again at fair market value price
- The lease is extended at the new fair market value price
- The machine can be purchased outright
- Or the machine is returned for an upgraded model
The flexibility that leasing provides is the driving factor why many construction companies choose this option over financing.
Advantages Of Leasing
The unique benefits that this business decision brings include:
- An opportunity to lease latest equipment. It’s helpful in industries where technology needs to be upgraded often to be competitive.
- There are no large upfront payments. With fixed payments, construction companies can allocate funds appropriately.
- Leasing has tax-related benefits. Companies can deduct payments towards leased equipment. Speak to a qualified accountant before making this decision.
- Monthly payments are typically low. Companies are paying a small portion of the equipment’s worth over a long period of time.
- Flexible end-of-term options. Firms have the freedom to decide what to do with the equipment once the term ends
Financing Construction Equipment
On the reverse, financing is having the equipment on loan. The loans offered are used to buy equipment, companies then must pay periodic payments over a fixed term. Once paid in full, companies receive full ownership and title of the equipment.
Equipment loans can also impose liens on additional assets or require personal guarantee before the equipment is received.
Advantages Of Financing
Compared to leasing, financing offers slightly different advantages for businesses:
- When financing construction equipment, there is additional security in not having to worry about unexpected costs after the term is up.
- More flexibility in financing than leasing as early buyout options and fewer penalties are in place
- For larger firms, financing provides better cash flow. Financing interest expenses have the potential to be lower than leasing equipment.
- Construction equipment finance does involve risk of depreciation, however equipment can sustain its value and that greatly benefits the company.
- When financing, it’s to be expected to deal with soft costs like installation and shipping charges which avoid interest in carrying costs.
Financing Or Leasing, It Depends
Understanding the differences between equipment financing and leasing can allow businesses to be more competitive and ensure they’re getting the most out of the equipment. While it can be confusing, speaking to industry experts can help outline the advantages of each option clearly.
Get started leasing or financing the equipment you need. Contact Yellowhead Equipment Finance today to get started. We’ll help you identify your eligibility, work with you to understand your options, and work with appropriate lenders to get the best solutions for your financing needs.