If you operate a construction business, you can achieve numerous benefits by acquiring your own equipment. This will eliminate the frequent rental costs for the machinery required during projects. These expenses are quite high and will impact the profitability of your business over time. In addition, the availability of company equipment is convenient and will reduce time wasted in rental shops. On the other hand, if you want to purchase construction equipment, you will require financing. The general expenses associated with this choice can change the financial state of your business. Here are some critical factors to consider before obtaining financing for the desired machinery.
Monthly Payments vs. Profits
You should diligently calculate the potential monthly payments that will be demanded by the finance provider. Compare the obtained figure with the profits that you are currently making in your business. You should also account for the extra business that you will expect after acquiring the construction machinery. However, you should be cautious because an overestimate could force you to exhaust your capital in covering the payments. All these considerations will help you determine whether your operation can afford the financing comfortably in the long-term. It is also important to remember that the returns should cover other expenses like maintenance costs, operator wages and even the fuel.
Obsolescence is an important concern in the construction machinery industry. Therefore, you should never acquire financing for equipment that will lose its usefulness before the payment period is completed. In simple terms, if you want to purchase a compact excavator that will be useful for five years, you should get financing that can be paid off within the same duration. A longer term loan will force you to delve into other finance resources after obsolescence. On the other hand, shorter payment terms can stress your business unnecessarily.
Loan vs. Lease
When looking for construction equipment funds, you should make a comparison between leasing and obtaining a loan. The loan is the default choice for most businesses because the ownership of the machinery seems more permanent. However, if you are still a young business, this choice might not be viable of the imposed strict credit standard. Leasing will allow you to use the equipment without necessarily owning it. Basically, this choice will protect you from obsolescence since the machinery belongs to the lessor, and the payments are lower since these are only for usage. This option is preferable for your business if you want to use the equipment for a relatively short period.
For more information about your options, contact a company that specializes in equipment financing.Share
15 April 2016
As the old saying goes, "you have to spend money to make money", and in this blog, I am going to help you see how and when that platitude applies. Hi, my name is Penny, and I love to write. My second favourite thing is to think and strategise about money and finance. In this blog, I am going to explain finance in ways that I hope are new and interesting to you. I studied accounting at uni but verged away from that to start my own consulting firm. I work from home, and I am bringing you this blog from my home office. Thank you for reading!