Selecting the right equipment financing products and services for your company can mean the difference between succeeding or failing as a business.
So it's important to get it right. Here is an overview of products and services available for financing construction equipment, along with some tips designed to help you make the best choices for your business in today's rapidly changing environment.
Retail Loans
Retail loans-or more precisely, retail installment sales contracts-are the traditional method for acquiring new equipment, because you can structure payments over a specified term. Many financing firms with construction industry expertise now offer flexible payment schedules that match the customer's income and cash-flow situation. So be sure to ask for flexible payment schedules that can be timed to your cash-flow needs-annually, semi-annually, quarterly or monthly.
Different loan types that are currently available include:
- Split-rate financing -Sets specific rate changes during the contract period that lowers the initial payment and reduces your interest expense
- Fixed-rate financing -Locks in the special lower rate for the entire term of the loan, protecting you against rising interest rates
- Variable-rate financing -Offers rates that reflect current market trends along with interest-rate caps to limit risk; payments remain the same until the final payment, which reflects interest-rate adjustments
- Equity plans -Require little or no initial investment allowing you to build equity early in the contract to cover the down payment
- Skip-payment plans-Align payment schedules to your seasonal income flow
Leases
Leases are one of the best financing tools for businesses that require more productive equipment for less money. This is because with leases, you pay only for the use of the equipment, so you can benefit from the latest equipment technology while conserving capital.
Leases offer many advantages because they can be structured in a variety of different ways. Options can range from twelve to sixty months, and from 300 to 2,000 hours per year. Leases can even be customized to match the cash-flow requirements of your business.
The most common leases are:
- Operating leases -Can help you expand your fleet without having to make a big initial investment. After the lease term, you have options-you can purchase, re-lease, finance or turn in the equipment and walk away. Tax savings and an initial outlay of only the first-month's payment make this a good choice for businesses seeking to conserve their cash flow. Operating leases are available for new and select used equipment.
- Finance leases -Provide many of the advantages of ownership. You can start building an equity stake in the equipment from the first down payment or trade-in. And, at the end of the term, you can choose to return the equipment or exercise the option to purchase.
Leasing also offers other advantages for certain businesses, such as fewer liabilities on the books and potential tax benefits.
"Leasing is an increasingly attractive option for our customers," notes Larry Self, Leasing Director for CNH Capital. "In fact, loader backhoes are now the No. 1 leased product in the construction market for our company, followed by skid steer loaders.
"This is happening because customers can use the equipment for a very low payment, and their payments are fixed for a given lease term. Then, in three years, when maintenance costs begin to climb, they can return the equipment and begin a new lease with a brand new machine."
Rentals
Renting is used primarily to supplement existing fleets for short-term project work, but in today's environment, rent-to-own programs are popular for acquiring equipment. Some of these programs can be very flexible and competitive. But because leases are so flexible, they offer many of the same advantages of Rent-to-Own.
Protecting and Maintaining Your Equipment
Once you've acquired your equipment, it's very important to protect and maintain your equipment assets. Insurance and equipment protection products you'll want to consider include:
- Physical Damage Insurance -Provides comprehensive coverage to repair or replace new or used equipment that
