Construction Equipment Financing
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Construction equipment financing is of vital importance to the company whose only focus is tearing down and building up the hundreds of thousands of building projects around the country. When a company's life depends on its heavy equipment to help produce a profit, the machinery must be always running well and be dependable under any circumstance. Since heavy equipment can have a long life and each piece is quite expensive, the construction equipment financing of each new purchase is a big deal to the bottom line of the company's financials. With dump trucks costing two hundred thousand dollars and cranes often over a million plus bulldozers, graders and other large items in the mix, how a company pays for their replacements is vital to a business remaining solvent.
One of the huge issues for any business is cash flow and the way a company pays for its high value equipment is of primary discussion whenever the purchase of new or used equipment comes to the fore. A company rich in equipment and business but up to its ears in loan payments can be as impotent as a company that can't find enough customers to keep the doors open. So the strategy of construction equipment financing can often make the difference between strength and weakness. Rich in equipment assets but cash poor could also be the picture of a person who lives like God is somehow an option that can be engaged or ignored without consequence. Living one's life and amassing wealth but ignoring God has a strange dichotomy to it and Jesus said the same thing: "What shall it profit a man if he shall gain the whole world and lose his own soul...or what shall a man give in exchange for his soul?" (Mark 8:36)
For the smaller construction company, the owner's own financial history and credit score will come into very high regard with the lender. Even with the company's own incorporation status, lenders giving tens or hundreds of thousands of dollars in loan agreements will want to know the solubility of the company and the owner. Tax returns, financial statements and at least a few years in business will be the requirements for getting loans or construction equipment financing lease deals. But in almost every case, the construction company owner will want to know whether it is more cost effective to lease or buy the machinery outright. Here are things to consider.
With this very heavy machinery, the life expectancy can be very long. So in the consideration of buying the machinery outright, the fact that the machinery will long out live any lease program is enticing. Consider a seven year lease on a bulldozer that may operate for twenty years or more. A lease will demand the company pay for the machinery's first seven years with a high dollar lease and when the lease is over the dozer is still running like a pup. Yet the company must either start leasing again, or start buying it at full price minus depreciation. On the other hand, a ten year construction equipment financing loan for the dozer at a discount price to begin, allows the company to own it outright at the end of the loan period and still have another ten years of good use. Buying allows a company to build up collateral for other loans that might need to be enjoined later and the depreciation on the machinery can help reduce tax liability.
The other side of the coin in machinery acquisition is the option of leasing which presents its own unique opportunities. In many cases leasing heavy construction machinery through construction equipment financing lease deals is 100% tax deductible. A tax expert should be consulted, but in almost every situation, a company can write those lease payments off any tax liability. Additionally, while buying large machinery often requires some serious down payment money, leasing is often accomplished with one month's lease payment up front, and whatever other required fees are needed. This frees up a lot of cash for other expenses and projects.
In many cases, new machinery means new training, new software, delivery, installation and sales tax, and all these concerns can be wrapped entirely into the lease payment. Leases usually run from twelve months to seventy two months and many leases give options for the leasee to consider such as purchase, upgrade to new equipment or just return that big ol' grader and say goodbye. Because the numbers and dollars are so big and so much is riding on the line for a company, a finance expert who has nothing to gain from either buying or selling machinery should be consulted on construction equipment financing matters.
In many cases, construction equipment financing leases for this big equipment are set in stone and the price is the price. On the other hand, some good old sit down and stare at each other eyeball to eyeball negotiating can be done when the machinery is bought outright. And if a bank will not approve of a large money purchase, there are plenty of online companies ready to step into the gap and provide financial backing for either the lease or the purchase. Perhaps one doesn't want to go through those sources and in that case, an angel investor or the provider of hard money may be exactly what an owner is seeking. These private sources of money may be willing to consider one's plight, but be prepared because both are going to want to see a very finely crafted business plan.
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