What to Consider When Seeking Construction Equipment Financing
Financing the acquisition of construction equipment instead of spending cash may provide significant advantages while minimizing risks. Furthermore, how you finance should be the outcome of cautious planning based upon multiple factors.
Here are things to take note of when seeking financing for your construction equipment:
Fortunately, financing solutions offered by equipment finance companies are usually customizable according to certain accounting, tax or cash flow needs. They practically run the gamut, offering a whole variety of financial products.
Preservation of capital is a something that makes equipment financing attractive for most businesses. Investing in huge capital expenditures typically represents larger financial risks, specifically for smaller companies. Financing rather than spending cash, and the exact type of financing used (lease or loan) can help minimize the uncertainty of a capital asset investment that may not yield the promised return. Lease payments, for instance, can typically be adjusted to the level of productivity produced by the equipment.
Maintaining at least a reasonable cash flow and consistent budgeting is another crucial issue when pursuing equipment financing. Instead of sizable capital outlays leading to significant budget fluctuations, financing makes even cost planning viable. Tax considerations are necessary as well. Full payout leases or equipment loans provide the borrower the option to take depreciation on the equipment acquired; on the other hand, an operating or FMV lease permits the same to pay in smaller amounts with zero depreciation. With a loan, you can lock in your payments for the asset’s anticipated life, but with a lease, there is less expense for the determined time of use.
Flexibility of Business Cycle
Flexibility is a key part of equipment lease financing. There are leases that permit occasional business fluctuations and decrease monthly payments as a project builds up and as revenue from the equipment or your business’ general situation is still inadequate or unstable. Some leases allow business fluctuations from time to time and reduced monthly payments as a project ramps up while profits generated from the equipment or the total situation of your business is still insufficient or shaky. In certain cases, occasional business fluctuations may be allowed and monthly payments may be lowered while a project tries to gain momentum and your business’ overall situation or gains from the equipment is still volatile or not enough.
Using the latest equipment is a must for business nowadays. The problem though is that for many businesses, especially those in the construction industry, buying equipment outright is too risky, if not totally impossible. By funding their acquisitions via term financing, they are usually able to purchase more and better equipment that could have been totally out of their league otherwise. Again, the secret to good construction equipment financing is to learn the process research so you can learn more about your available options. There is nothing that can help you in making a smart decision but more info.
Certainly, you must check the background of the financing company that you’re considering, including the quality of their customer service. Don’t ever take such issues for granted. Sometimes, this can be as easy as reading every page on their website.