Heavy equipment, as the term may suggest, includes large machines that are usually very expensive. Most small businesses don’t have that kind of money just lying around. They may have enough cash to purchase only supplies but not equipment as well. When it comes to individuals who want to start a business that employs heavy equipment, money may be an even bigger issue. That is why most of them decide to go with heavy equipment financing or leasing. But what is the difference between the two, and what is the best choice for your business? Keep on reading to find out!
What exactly is heavy equipment?
First and foremost, we have to understand what heavy equipment actually means. Heavy equipment is different from ordinary equipment that you would need for another kind of business. That is why the loans and leases that concern heavy equipment make up a whole other category.
Heavy equipment financing and leasing cover large machines usually used in construction, like Bulldozers, Jackhammers, Drills, Forklifts, Cement Mixers, etc. If you have a business and its operations depend on heavy equipment, upgrading to new and better technology may be difficult. Luckily, heavy equipment financing and leasing options might as well save your business from other competitors and allow you to purchase whatever you need. The trick is you have to figure out which option is better suited for your needs.
Heavy equipment financing vs. leasing
Simply put, heavy equipment financing is a better option if you have more money at hand for a down payment and if you plan on keeping this equipment for a longer period of time. On the other hand, heavy equipment leasing can be a lifesaver if you only need the equipment for a specific project and you don’t plan on using it in the future. The rapidly evolving technology and the need to upgrade also makes the case for a heavy equipment lease rather than a loan.
Pros and Cons of Financing
So, when it comes to heavy equipment financing, there are a few pros and cons. On a positive note, the application and qualification process for a heavy equipment loan is pretty straightforward. There is not a lot of paperwork, and you don’t have to display an excellent credit history. In most cases, the equipment that you are going to buy acts as collateral. That means that lenders don’t deal with a lot of risks, and they are usually willing to give you a loan.
The thing that they mostly focus on is the resale value of the heavy equipment you are planning on buying. That will help them decide how much they are willing to lend you.
One of the drawbacks of heavy equipment financing is the initial down payment that you have to put up. If a business has cash flow problems, then this part of heavy equipment financing can quickly become a challenge. You also need to remember that by the time you pay back the loan, your equipment may become obsolete. So if you are planning to go for heavy equipment financing, make sure you buy quality equipment that will last you a long time.
Pros and Cons of Leasing
Heavy equipment leasing, on the other hand, gives you the opportunity to use the newest and best quality equipment. If you don’t have the money to outright buy this kind of equipment, leasing is something that can still give you access to it.
The terms of a heavy equipment lease usually last between two and seven years, so that gives you the guarantee that the lease won’t outlast the quality and functionality of the equipment.
Heavy equipment leasing is also the more flexible option of the two. Negotiating the terms of the lease and the payment method is pretty easy and straightforward. And even though it may not sound that way – the positive aspect is that you are not the owner of the equipment, and it is not your responsibility to maintain it.
However, leasing is not without its disadvantages. One of them is the fact that, in the end, you will have paid more money for the equipment lease compared to taking out a heavy equipment loan. Also, the equipment available for leasing is not very versatile. This means that if you need specialized equipment, you might have to take out a loan.
All in all, businesses in need of heavy equipment tend to gravitate towards one of the two options. Buying heavy equipment on your own can be a big challenge, even for highly developed companies. The key to deciding which option suits you and your business more is to assess your budget and your needs.