Is Leasing Construction Equipment Best For Your Business?
Sometimes, it’s great to own construction equipment. That huge backhoe over there is yours! Nobody can take it from you (at least not easily).
But sometimes, owning stuff like that is a big pain for a small construction firm. You’ve got to store it. You’ve got to maintain it. You’ve got to organize all the documentation for it in your construction software. You’ve got to make sure you’re getting enough use out of it in order for it to be worth the king’s ransom you paid for it. And when you’re done with it, you have to find someone willing to buy it from you.
So what if you just … leased construction equipment? It’s a tantalizing proposition—that’s why you’re here.
But there are downsides to leasing, too.
Before you jump in with both feet, let’s go topic-by-topic and talk about the pros and cons of leasing construction equipment to help you make a good decision—which you need to make as soon as possible to avoid overpaying for construction equipment on your next project.
Pro: Buying construction equipment is really, really expensive
Construction equipment is not cheap. A brand new CAT bulldozer can cost in excess of $1 million, for example. That’s a tough pill for any small construction firm to swallow. Even used ones run in the tens of thousands of dollars to start. Leasing allows you to pay a fraction of that.
You should consider leasing if… your company can’t afford to purchase new or sometimes even used construction equipment.
Con: Leasing is more expensive in the long run
Leasing construction equipment will save you money short-term, that’s for sure. But over the years, those leases will add up, and they will most certainly be more expensive than owning a piece of construction equipment. Companies that lease construction equipment make their money through interest rates and by charging more per month than you would pay if you were buying a machine.
You should avoid leasing if… you have the capital to buy a machine and are likely to use it regularly.
Pro: You only pay for it when you’re using it
If you’re a small construction firm, there’s a good chance you don’t need that bulldozer 12 months out of the year. Maybe you just need it for around three months for particularly heavy duty projects. If you lease, you can save a huge amount of money by just paying for the parts of the year when you expect to use it. This may require some planning on your part, but it sure is worth it when it comes to your business’s bottom line.
You should consider leasing if… you only use a machine a few months out of the year.
Con: It’s not always available when you need it
When construction equipment that you need isn’t available to you, it will cause your project to grind to a halt. Did your workers get done with a project early and now they’re ready to move on to concrete work? Too bad your lease for that concrete pump doesn’t start for another week. There goes all that time cushion you had that could have helped ensure your project finished on time.
You should avoid leasing if… you find you’re frequently running into delays because the right equipment wasn’t available.
Return on investment --------------------
Pro: Construction equipment depreciates
As wear and tear builds up on your construction equipment, its value will go down significantly. By the time you are ready to sell it, it may be worth a fraction of what you paid for it. Even construction equipment that is in good condition may still depreciate significantly, particularly in the first few years. People prefer to own new stuff.
You should consider leasing if… you don’t want the hassle of trying to sell equipment when you no longer have use for it.
Con: Leasing only makes sense if you have a sporadic workload
You may not like the idea of shelling out potentially hundreds of thousands of dollars on equipment, but the reality is that leasing only makes sense for construction firms that have a sporadic and inconsistent workload. If you’re a chugging full throttle 12 months of the year and doing mostly the same type of work, leasing is going to be very expensive for you over the long run.
You should avoid leasing if… you find that you are constantly using the equipment, even if you don’t like paying for it.
The leasing company -------------------
Pro: You get to use the latest and best equipment
A good leasing company can provide high-quality equipment that is either brand new or slightly used. When you lease equipment from these companies, typically you’re getting new or slightly used equipment that offers the latest and greatest in terms of technology and capability. This may increase your effectiveness as a construction firm, and at the very least it’s a morale boost for workers getting to use the best equipment on the market.
You should consider leasing if… your workers complain about working with old and outdated machinery that breaks down a lot.
Con: Finding a good leasing company is tough
You’ve got to be careful with leasing companies. Some offer bad deals with sky-high financing rates, exorbitant monthly payments and sneaky clauses buried deep in contracts. You need to go over that contract with a fine-tooth comb and ignore high-pressure attempts to get you to sign on the dotted line right away. Shop around, too.
You should avoid leasing if… you can’t find a trustworthy leasing company with a good contract that makes sense for your business.
Other considerations --------------------
Pro: You don’t have to store, transport, or maintain it
You aren’t done paying for a piece of construction equipment after you sign on the dotted line and take possession of it. As with any expensive thing that you buy, whether that be a house, a car, or an excavator, you will pony up over the life of this possession. You also may need to pay to have the equipment transported to another site, or to park it in its own designated area every day. Maintenance and repair over the life of the machine may equal 75 percent of the new cost of the equipment. That’s a sobering figure.
You should consider leasing if… storage, transportation and maintenance costs are eating your lunch, and you’re desperate for a way to cut costs.
Con: Renting might make more sense
OK, so leasing is a little bit more expensive than you thought it would be—and requires more commitment than you thought it would—but buying still doesn’t make sense. What about renting? In most cases, leasing is probably the better option, but you might be able to find a rental deal that is better than a lease and is a better fit for your business.
You should avoid leasing if… you still can’t get the numbers to work with buying or leasing, and want another option to consider.
Make A Decision About Leasing Construction Equipment Soon
It’s not an easy choice, but it’s one you need to make now. It’s time to sit down and crunch the numbers—the longer you delay, the more money you’ll lose with each project as you overpay for one option or the other without knowing whether you’ve made the right choice. Take these simple steps to help you come to your decision:
Figure out how many months of the year you’ll be using the equipment on a regular basis.
Determine how many years you expect you’ll need to have the equipment in your possession.
Calculate the cost of buying versus leasing over that time frame, and don’t forget to factor in maintenance, transportation and storage costs for a purchase.
Calculate how much you could sell the equipment for at the end of this term were you to purchase it outright.
Consult with your workers on how important new equipment is to the performance of their jobs.
See what the best rental deal you could get would look like compared to a lease or a purchase.
All this information should give you a clear picture of what your construction business should do moving forward.