Business owners find the equipment needed, at the vendor of their choice, and directly negotiate the purchase price, close the deal and assign the purchase order to the lessor. The lessor then completes the lease and provides the funds directly to the vendor to purchase the equipment for the business owner.

Equipment leasing companies generally help the construction company access financing quickly by using non-recourse (non-collateralized) debt. Because of their relationships with financial institutions, most leasing firms use a process that quickly establishes the credit ability of the construction business owner with no financials required in leases under $100,000. This allows for some of the fastest turnaround in the industry-from hours to just days. Equipment leasing requires zero down payment and 100 percent of the equipment cost may be financed. Many equipment leasing companies even allow sales tax, delivery, installation and training to be added into the lease. Additionally, a lease doesn't tie up the business owner's personal credit to qualify and, in most cases, offers substantial tax benefits. Equipment leasing has benefited thousands of businesses and helped many construction business owners like HDM run a successful and profitable business with no headaches.

"Like most small business owners, I like to keep my business far away from debt," Ramirez commented. "Equipment leasing is a great avenue for construction business owners because it allows you to pay for your equipment as you're using it, and we don't have to shell out tons of cash every time a piece of equipment breaks."

Types of Leases

There are several types of leases to choose from depending on the terms that best suit the business' needs.  First, there is the Fair Market Value Lease, an excellent option for business owners expecting a decrease in the value of their leased equipment. The lease agreement provides three options when the term of the equipment lease ends: purchase the leased equipment at fair market value, renew the equipment lease or return the equipment.

Another lease financing option is the Dollar Buy Out Lease. With this option, at the end of your lease term, a business owner may "buy" the equipment for just a $1. This is an appealing selection for businesses with equipment that will not lose value when keeping equipment after the lease ends.

Many equipment leasing companies also offer commercial leases for large equipment purchases over $100,000.  With this particular lease, many banks will include equipment leases on a business' available credit and reduce the credit line limits accordingly.  Some equipment leasing companies, however, have special arrangements so that equipment leases won't affect a company's available bank credit. The construction industry is one that can benefit immensely from equipment leasing, especially when starting out in the business. Even though construction is primarily a labor-based business, start-up and one-time fees can make it difficult for a contractor to build a profitable business.

"If we had leased sooner, we would have had a lot more operating capital, which could have helped to bring in more business," Ramirez concluded. "My company is in a much better situation now. As a business owner in this industry, I would not recommend purchasing equipment any other way."

Dave Gilbert and Dan Feder are co-CEOs of Five Point Capital. Visit www.fivepointcapital.com. They can be reached at 800.310.6254.

Tags: 2007 September Issue, costs, equipment, financial, value,

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