The construction industry is one of the most profitable industries there is. That is why a lot of people are deciding to open their own construction businesses. However, construction equipment can be expensive. To provide your customers with all of the services they need, you must possess the tools you need to get the job done. As a contractor, that means purchasing the best equipment for your contracts that will ensure you do a top-notch job and complete the project on time.
Purchasing new, updated equipment is costly. For that reason, it’s important to set up a financing plan to manage your costs effectively. One way of doing that is to apply for equipment financing to cover expenses for your equipment purchases.
In this article, we are going to go review the difference between equipment leasing and equipment loans. We’ll also discuss how equipment financing can help your construction company in numerous ways.
Equipment Leases for Contractors
Equipment leasing is a great option for construction companies. Sometimes you only need certain equipment for specific jobs. With an equipment leasing plan, you rent the equipment from a lender. At the end of your lease, you can either return the equipment, extend the lease, or purchase the equipment outright from the lender. The bottom line pretty much depends on the agreement you and the leasing company come up with and agree with.
With an equipment lease, you borrow the equipment you need for your construction contracts and pay monthly payments. Your payment then goes either directly to the equipment company or to their third-party financial company that handles their lease payments. You never see the money, and you don’t own the equipment unless you buy it from the lender at the end of the lease term.
An equipment lease is ideal for construction companies that are doing a special job for a project. Sometimes that one special job needs a unique, expensive piece of equipment. Upon completion of the project, you might never need it again. With that, it makes much financial sense to lease that particular piece of equipment than purchase it outright.
By setting up an equipment lease, you can borrow the equipment you need and make monthly, tax-deductible payments. That means you get the tools you need when you need them, and then move on to the next job.
Equipment Loans for Contractors
Equipment loans are similar to traditional loans and come with one restriction that the money must be used on equipment purchases. Instead of getting a lump sum of money, the lender pays for the entire cost of the equipment you need. You, in turn, make monthly payments according to the particulars of your loan agreement.
Different lenders offer different interest rates and repayment options. Like any financial decision, it’s important to consider the alternatives. Best to shop around and find the right loan that covers your equipment needs and budget.
Equipment loans are beneficial for construction companies because it saves you from the burden of making large purchases that can deplete your cash reserves. By spreading out the payments over the term of a loan, you can free up working capital for your other operating expenses.
However, you must make sure that you can make the payments on the agreed time. Missed or late payments not only damage your creditworthiness but it can also lead to the lenders seizing your equipment. As the name implies, equipment loans allow you to borrow a lump sum of money to buy an equipment but that equipment will serve as a guarantee for the loan you took out. With the collateral, the lenders will face lesser risks. The borrowers, in turn, can enjoy better loan terms and low-interest rates.
Benefits of Equipment Financing for Contractors
Equipment financing is perfect for construction companies. Different jobs require different equipment, but purchasing specific pieces of equipment isn’t practicable or cost-efficient. On the other hand, with equipment financing, you get the tools you need when you need them all without tapping into your cash reserves.
The biggest benefit of equipment financing is the flexibility it offers you. Instead of spending huge chunks of money on expensive equipment purchases, you set up an equipment financing plan that preserves your working capital. This allows you to always have the tools you need without depleting your cash reserves, allowing you to maintain a back-up in case of an emergency…
Your construction company needs to have the best equipment to get the contracts you need. If you want your clients to keep coming back, you must offer them the services they want. Equipment financing is one, relatively quick, option for covering the equipment costs that does exactly that for you.