Construction equipment finance is designed to help construction companies and contractors acquire the machinery and tools necessary for their projects. This includes heavy equipment like excavators, bulldozers, cranes, loaders, and specialised vehicles, as well as power tools and machinery such as floor grinders, floor polishers, generators, compressors and more.
Common Financing Options for Construction Equipment
Equipment Leasing
Rental / Operating Lease: A facility for any type of equipment and gives businesses the highest level of flexibility. The lessor retains ownership, and the lessee pays a rental fee. At the end of the lease term, the equipment can be purchased, returned, renewed, or upgraded. Rentals are the most flexible of all finance facilities.
Finance Lease: Similar to a loan, where the business makes payments over time and may have the option to purchase the equipment at the end of the lease.
Chattel Mortgage: A loan is provided to purchase the equipment outright. The loan is repaid with interest over a set period with an option for a balloon to help lower monthly repayments.
Vendor Financing: Some manufacturers or dealers offer financing directly to buyers through third party financiers such as Finance@work. This can be convenient and may include benefits like payments or maintenance packages.
Benefits of Construction Equipment Finance
Cash Flow Management: Spreads the cost of expensive equipment over time, freeing up cash for other operational expenses.
Tax Benefits: Depending on the financing method, payments may be tax-deductible, and some equipment may qualify for accelerated depreciation.
Flexibility: Leasing options provide the flexibility to upgrade to newer models as technology advances, ensuring that the business always has the latest equipment.
Asset Management: Financing allows businesses to acquire high-value equipment without depleting capital reserves, and in some cases, ownership of the asset can lead to long-term savings.
Considerations
Payments and Fees: Carefully compare different financing options to understand the total cost, including any hidden fees.
Term Length: Align the repayment schedule with the expected life of the equipment and the duration of the projects the equipment will be used for.
Maintenance and Repairs: Consider who is responsible for maintaining and repairing the equipment. Some leasing options may include maintenance services.
Residual Value: In leasing agreements, consider the residual value of the equipment at the end of the lease term if there’s an option to purchase.
Specialised Financing
Leaseback Arrangements: If a company already owns equipment, it can sell the equipment to a lender and then lease it back. This frees up cash while allowing continued use of the equipment.
New vs. Used Equipment: Financing is available for both new and used equipment. Used equipment can be a cost-effective option, though financing terms may vary.
By understanding these options and considering the specific needs and financial situation of the business, construction companies can make informed decisions to acquire the equipment they need to complete their projects efficiently.