The construction industry makes use of a large number of complex and various equipment. Construction activities are numerous and diverse. They are pricey and labor-intensive. Constructors have to control and work with all these activities as a practical whole. Cost is of paramount importance and limited budgetary controls ensure efficient project administration.
Construction equipment is expensive and costly to maintain. Specialized equipment calls for experienced and expert operators. Smaller constructors discover it difficult to buy new equipment given that the offered financing options are very tight. Bigger contractors require leased, rented, and owned equipment in adequate numbers for cost-effective operations. Rent, lease, and ownership need to be balanced delicately to reflect well on the business’s performance. One more option is to buy used equipment.
A proper mix of the various kinds of equipment and machinery increases and productivity of operations. Construction equipment lease can help you get the most out of your investment. But be sure to compare leasing options and understand the terms before making a decision. There are several factors to take into consideration while making your mind on a buy, sell, or lease decision.
Factors to Consider
This is the most important and critical factor to take into account. The current capital situation must be very healthy and desirable if you intend to opt for buying equipment. Most of the equipment and machinery cost thousands of dollars and upwards. If not properly planned, a purchase will land you in a financial mess. Locked-up dollars will make it hard for you to fulfill your current commitments and pay wages. Ambitious purchases do not sit easily on your cash reserves. Rentals and leases help you save money for meeting daily expenses.
There are several government regulations regarding the lease and purchase of equipment. OSHA also consistently updates its safety and security guidelines pertaining to the quality of equipment and machinery to be made use of in workplaces. Constantly upgrading your equipment will shoot your expenses through the roofing system. In a lease, you can claim a deduction for the complete cost of the equipment from the taxable income. Capital allowances can be claimed for the entire cost of possessions on leases that have a period of more than 5 years. Sometimes a duration of 7 years is required.
If you purchase the equipment you can show it as an asset on your balance sheet. Most of the time, you would have availed of financing to fund the purchase. Deductions for depreciation and interest can lower the company’s taxable income. In this manner, you can save money on taxes yet a major purchase can really run out your money gets.
Lots of regulative bodies and users of financial statements have explained the ambiguity in tape-recording leasing transactions, and the difficulties in assessing an organization’s leasing activities. It is needed you search for the latest rules and regulations before making a decision on purchase, rent, or lease. The regulations differ from state to state. See what applies in your city or state.
Equipment and construction like cranes, excavators, diaphragm pumps, significant stainless steel pipes, and rigging equipment are really pricey. You need to keep them well and train the workers on how to use them. You may need to employ the services of professionals to handle them and control their use. Old and used equipment is hard to dispose of. It is hard to find buyers for used equipment and you will certainly not find the resale worth worthy of the expensive buy.
Purchase Is Risky
The economy is yet to find its feet. There are few big-ticket construction projects out there to justify a big buy. Cash gets are extremely important in an unstable economy and you would do good to protect your credit lines.
Let’s take a look at the different sorts of leasing options available.
Leasing Financing Options
The type of lease agreement you select depends on several factors. You need to take into consideration the details need of your company like profitability, tax situation as well as cash flow. Another important aspect to think about is the duration you will require for the equipment for. The long-term potential of your business and future plans additionally require to be considered.
Here is a couple of leasing options for constructors to consider while making up their mind on equipment financing options.
Fair Market Value Leases
This is one of the most popular options when it involves leasing construction equipment. This is selected in cases where there will be a quick depreciation in the value of the equipment because of normal and intense use. Pricey maintenance activities may also prove necessary. A number of leasing businesses offer free services to competent personnel for repair and maintenance work.
This type of lease provides flexible options to constructors at the end of the agreement. They can return the equipment, renew the lease or purchase the equipment at a reasonable market value. This gives contractors the freedom to upgrade to and latest technology in a cost-effective and easy manner. Contractors have the option to continuously renew and upgrade their equipment and machinery without sustaining pricey purchases.
Dollar Buyout Leases
This leasing option is preferred by companies or contractors planning to purchase equipment or machinery at the end of the leasing period. This setup allows the contractor to buy the equipment by means of small lease payments. Freed-up working capital allows funding of ambitious development or expansion strategies. A dollar buyout lease agreement allows contractors to buy equipment for one dollar at the end of the lease.
This lease agreement allows consolidating a number of lease payments right into a single, regular payment. This is an apt option for a construction contractor who encounters a sudden need for new equipment. Wrap lease agreements offer flexibility to finance new equipment with the existing lease. Lessees have the ability to settle their outstanding payments and use them to finance a new lease with additional equipment. This arrangement can be found useful for contractors working on huge and complex projects with unpredictable needs and demands.
Sale leaseback is a great option if you wish to alleviate the problem of a current purchase. This allows companies to sell their newly obtained equipment to another company, and then execute a leasing agreement for its usage. Small and regular lease payment weighs lightly on cash reserves. It’s also a great way to raise capital to fund other companies’ initiatives.
There are several options available for contractors while leasing equipment. Newly formed companies and start-ups require to be specifically sensible while using the leasing options to make sure maximum availability of working capital. Refinance options are additionally offered for purchased or owned equipment, cars, and machinery. But the equipment needs to not be outdated and must be reasonably new.
For more information about lease options for construction equipment financing, contact us at 888-308-7160 or visit our official Lease Funders’ website.