Heavy equipment plays a role in most industries. Construction companies, grocers, sports arenas, and warehouses all utilize heavy equipment in some way to get the job done.
Having the right equipment for your company can save time, energy, and money. When it comes to your company’s appliances, you have to spend money before earning money. Heavy equipment leasing and other forms of funding allow businesses to afford the necessary equipment.
Before you apply for financing, it helps to understand the different forms of funding available for businesses like yours.
What To Expect From Equipment Cost
Most businesses cannot afford to purchase heavy equipment upfront. If they can afford it, the act of purchasing creates a significant dent in the company’s available cash flow.
Heavy equipment can include the following:
- Front-end loaders
- Diesel-powered dump trucks
The cost of the machinery depends on its size, age, and horsepower. For example, a small bulldozer may cost tens of thousands of dollars at the lowest and up to $200,000. On the other hand, a large bulldozer may cost as much as $485,000.
It is not always practical to use handheld tools, mainly working in the construction or landscaping industries. Most businesses have to consider heavy equipment financing to afford machinery. Heavy equipment financing may include loans or leasing.
In a loan, you borrow money to pay for the equipment and pay the lender over some time. With equipment leasing, you pay for the equipment over a period of time and return the machinery at the end of the lease.
The Pros and Cons of Heavy Equipment Leasing
Both financing and leasing equipment are ways for business owners to afford the tools necessary to perform the job. The difference between equipment leasing and financing is that you own it until you decide you don’t want it when you finance the equipment. Then, you may sell it to purchase new equipment or enter into a trade-in agreement.
On the other hand, leasing allows you to access the equipment for the duration of the rental equipment agreement. You may choose a capital lease or an operating lease. An operating lease is a short-term rental, whereas a capital lease is a long-term lease where you maintain the equipment.
Advantages of Equipment Leasing
One of the main advantages of equipment leasing is that it helps businesses afford machinery they may not otherwise afford. Leasing is ideal for equipment that requires regular updating or for industries with rapidly growing technology. If you purchase heavy equipment outright, you have to worry about the costs of repairs and replacements. Leasing makes it easier to upgrade to better models. Some funders provide you with options to upgrade after a couple of years.
If the equipment doesn’t have a long lifespan, it may not be worth the upfront cost. When machinery depreciates, it may cost you more, in the long run, to buy it outright, with your funds or an equipment loan. If you do not want to use the equipment for the long term, you can return it. Likewise, many funders have options to purchase the equipment at a discounted price at the end of the lease.
Heavy equipment leasing allows you to make a purchase quickly without compromising your cash flow. Leasing may have lower interest rates than equipment loans. Since the equipment is collateral, you are less risky to funders.
Disadvantages of Equipment Leasing
One of the main disadvantages of leasing equipment is that you do not own it. It belongs to the company you lease from, and if you default on your payments, the funder may collect the equipment. Additionally, you cannot include the value of the equipment with other assets belonging to the company.
New businesses may have more difficulty leasing equipment. Funders may require the company to pay more upfront to enter into a lease. If you invest in equipment that may become obsolete quickly, you could end up paying too much for depreciating machinery.
How To Calculate Heavy Equipment Financing
Heavy machinery is a significant investment for your company. To calculate the initial cost, consider the price of the equipment. Look at new and used equipment rates and determine which is better for your business. In addition to the base equipment cost, there are other factors to consider.
Both loans and leasing require you to pay interest. Calculate the amount of interest you would pay over the lifetime of the lease or loan. Add the interest to the overall cost of the equipment. Next, consider the operating costs. How much does it cost you to operate the machinery? Think about fuel costs, replacement blades, tires, and other components. Keep in mind that the unexpected does happen and add on average around 10% to the overall cost for emergency expenses.
Heavy machinery is supposed to improve your company’s performance. With improved performance, you should be able to make more money. Calculate the impact the equipment may have on your company. How much faster will it allow your employees to finish their job? How much profit can you earn with the help of the equipment? When calculating the overall cost of equipment financing, consider the profit you’ll make on top of the money you have to spend.
Get the Funding You Need for Heavy Equipment
The importance of funding for your business cannot be understated. If you want to profit, you have to spend an initial amount to propel your business forward. Throughout the life of your business, you may need various forms of funding. Most companies cannot afford heavy equipment upfront and require leasing instead. When choosing your form of funding, weigh the pros and cons.
At Platform Funding, we understand how important it is for you to receive the funding you need to provide your clients and customers with quality service. We streamline the application process to help you find a funding plan that works for you and your company. We want your program to be tailored to your specific request and desired terms. Contact us today to find out more about equipment financing.