The prospect of leasing construction equipment is of particular interest to SMBs (small to medium-sized businesses) that have limited working capital. However, there are still some pros to buying as an alternative, once you understand the benefits and drawbacks of both options. Renting is also an option; but usually this is part-and-parcel of leasing in most cases.
The Benefits of Buying Construction Equipment
The primary benefit od outright purchasing construction equipment is the reality of complete ownership. As a result, you can garner tax benefits and employ the machine as equity or collateral for loans ranging from traditional to mezzanine. Generally, it’s also cheaper – although it will be a lot more expensive at the outset when compared to leasing or renting.
Another benefit to buying is the ability to alter the equipment, since it effectively belongs to you. When leasing or renting (more so in the latter), you are definitely barred from making modifications, and the financial penalty for doing so is often heavy.
Drawbacks in Buying Construction Equipment
The primary drawback, as mentioned at the outset of this article, is the upfront purchase price. Depending on the piece of equipment, this could have a dramatic effect on your overall working capital – which is renting or leasing is often preferred. The more robust the construction machine, the more beneficial is the leasing alternative.
Furthermore, when you purchase outright, you are responsible for any and all repairs, as well as replacement costs for a piece of machinery that is irretrievably broken or too old to be operationally efficient. Unless you’ve factored these into your business expenses, it may be necessary to secure a loan. Additionally, transportation costs are completely your responsibility if you purchase, whereas leasing often puts this burden on to the lending company – they outsource this, making the cost much lower for any particular borrower. Ultimately, it’s up to you to assess whether the benefits outweigh the drawbacks; the more costly the piece of construction equipment, however, the more likely leasing is the superior option.