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Construction, Business - 4 min read
Head of Sales and Marketing
Nov 22, 2017 3:13:00 PM
Most construction businesses need equipment in order to operate, but funding these purchases can be impossible without financing. Fortunately, many finance options make it possible for construction companies to acquire the equipment they need in order to best serve their customers.
But how do you know which finance options will work best for your company? Which options will help you to get the equipment you need without adversely affecting your cash flow or credit? There isn’t one right answer for all businesses. The right choice for your business is the one that will position you for future success. Let’s take a look at some of your options.
For some businesses, it’s best to look at flexible financing options that can be specifically tailored to your needs. You may need to establish financing parameters that help you with your cash flow, your tax situation, or even your own accounting system.
Leases generally have flexible terms. Check out fair-market value (FMV) leases as well as capped FMV leases as you’re weighing your flexible financing options. Fully payout loans may also offer you the flexibility you’re looking for.
There are several attractive benefits to leasing your construction equipment. First off, you’ll always have the most up-to-date equipment. At the end of your lease, you simply turn in the equipment and upgrade to the newest model.
If you find that you don’t end up using a piece of equipment as much as you thought you would, you can turn it in at the end of the leasing term without having to deal with selling it. You may even be able to turn it in early by paying an early termination fee, saving you months of payments.
With most leases, you don’t have to pay a down payment up front. This helps with your company’s cash flow and makes it easy to acquire much-needed equipment when you need it. Rental payments are tax-deductible for your business, but you won’t be able to write off depreciation like you could if you owned the equipment.
If you have good credit, a small business loan might be a good choice for financing your construction equipment. You may be able to get all the cash you need for making your construction equipment purchase with one simple loan. The downside of using a loan to purchase your equipment is that it may limit your ability to borrow money in case you have other business capital needs. If having the ability to borrow is a priority for your business, consider seeking leasing options over small business loans.
Equipment loans, which work much like car loans, are easier to get than small business loans. With equipment loans, you own the equipment right away (unlike with a lease), and when you’re done paying off the loan, you can either continue to own the equipment outright or you can sell the equipment in order to buy something new.
You may realise some tax advantages by using equipment loans for your construction equipment purchases. For example, you can deduct interest on the loan and depreciation on the equipment. These tax benefits may be quite advantageous to your business.
Most lenders require a down payment for equipment loans. If the down payment will significantly disrupt your cash flow, you might want to consider leasing instead. Check with your lender, however; some lenders are willing to use equipment as collateral against equipment loans.
For most construction businesses, preservation of capital is a priority. This is especially true for smaller companies or for companies that are just starting out. In order to keep your cash flow solvent during large projects, you need sufficient capital for paying vendors, payroll and other large expenditures. Financing your construction equipment can help you to preserve your capital and keep your cash flow rolling along in a healthy way.
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