Posted by Nikki Wardle on Nov 8, 2016 9:00:00 AM
A common challenge rural construction, transportation or agriculture businesses run into from time to time is determining how to obtain the equipment needed to generate revenue. Those industries have high barriers to entry, mainly due to the cost of large equipment required to do business. You can't be a trucking company without trucks, can't harvest a field without farm equipment, and a construction company needs construction equipment.
Conventional wisdom says that you should always own your equipment, so you aren't beholden to anyone but your customers. That can be true in some circumstances, but the market pricing and credit availability following the 2008 recession have made leasing a more attractive, or no-brainer, option for equipment leasing. Here are five of the bigger reasons leasing is more appealing that purchasing.
When you lease equipment, you are renting the equipment from the seller or financial institution for a monthly fee. It is common for the terms to include certain benefits such as low use credits and maintenance offers. These options will ensure that your equipment has a cost that is predictable every month and will help you run your business more efficiently and maintain cash flow.
Invisible on your balance sheets
An operating lease is not considered as a loan or liability as far as your balance sheet is concerned. This can help you unburden your business from the typically high debt loads in the industry and may make you more attractive to lenders should you need to access a load or line of credit.
Less cash required
Leases are more expensive over the long term but need lower cash levels to secure financing. These lower capital levels can be very intriguing to businesses still recovering from the recession or just starting out. Also, most of the other costs (maintenance, taxes, delivery, etc.) can be folded into a lease's total cost, which frees up your cash flow today to get your equipment and start earning immediately.
Avoid technology obsolescence
When you purchase a piece of equipment, you are committed to that level of technology. The problem pops up when a newer piece of equipment a few years down the road has made some advancements that make it much more efficient for your line of business. A lease will give you the option to purchase the equipment at the end of the term, but you can also take that time to upgrade to the newer equipment and technology. This can have huge impacts on your efficiency and grow your bottom line.
It isn't a secret that in the last year equipment and tractors have had huge decreases in their used value. The average tractor will be depreciated to one-tenth its purchase value in just a few years. A lease option allows you to avoid those massive depreciation numbers dragging down your business. You technically don't own the equipment, so the depreciation is less of a problem for you.
There are pros and cons to both buying and leasing; however, leasing can give needed relief to the construction, transportation, and agriculture industries by freeing up cash flow and putting you in a more stable position overall. Speak with your lender about your business and see what might be the best fit for your situation. If you have questions about what leasing can do for you, contact us today.