Why Construction Companies Lease Heavy Equipment
The decision to lease heavy equipment is often based on pros and cons of both leasing and buying. Many construction contractors find that leasing is the way to go, for several reasons.
Buying heavy equipment comes with the main benefit of maintaining control over the situation. The equipment belongs solely to the construction company, along with its tax implications. Things like insurance, depreciation and repairs are tax deductible, making a purchase more attractive. Additionally, the owner maintains control over the use, maintenance, repair, and eventual sale of the equipment, so cash can be recouped that way. But the disadvantages of ownership often cancel all that out. When you own heavy equipment, you risk obsolescence. Every year, a new line of heavy equipment comes out, and it’s better than last year’s machinery. Newer models incorporate new technology, and every advance in GPS and software changes the availability of new features in next year’s line. Purchasing rather than leasing means you lose out on the chance to inexpensively upgrade to the newest offerings. As time passes, air-quality regulations change, which means old equipment may no longer be useable if it doesn’t meet standards. All of that is in addition to the significant loss of capital funds that you used to purchase that equipment. That cash might’ve been better used to grow your business or broaden your work scope base, but it’s no longer available to you if you purchase rather than lease.
Capital is likely the biggest advantage to most contractors that choose to lease heavy equipment. Using operating expense to pay your lease fees, rather than capital funds to purchase, means that the cost of the equipment is properly passed on to your client via your billing and your finances aren’t heavily impacted in the long-term. The availability of new equipment is another; many leases are written with the opportunity to upgrade as technology improves heavy equipment every year. Maintaining a steady cash flow is the pathway to success for a small business, but that’s tough to do in construction where work ebbs and flows with the weather, the economy, and more. Leases can stretch out your cost in such a way that the expense is manageable and expected rather than extreme when you can’t afford it.
If you’re considering an opportunity to lease heavy equipment rather than buying it, take a look at all of the pros and cons of both. Only by knowing the nuances of both agreements can you determine the one that’s best for you and your company.