In the construction industry, having access to advanced equipment is essential to managing your projects efficiently. At the same time, business expense of purchasing such equipment outright can be prohibitively expensive for many businesses. So, what is the solution? Leasing construction equipment.
By leasing construction equipment, businesses can gain immediate access to the advanced machinery they need without an exorbitant upfront cost. It's a financing operation that helps to keep costs down and allow businesses to focus on their core competencies.
This guide explores this type of construction equipment financing, including lease options and selecting the right heavy equipment leasing companies for your needs.
What is Leasing?
Leasing is a contractual agreement between two parties, the lessor and the lessee. The lessor is the owner of the equipment, while the lessee is the business or individual renting the equipment. Leasing allows businesses to access equipment without the large upfront cost associated with buying equipment outright. Instead, the lessee makes monthly payments over a specified period to use the equipment. At the end of the lease term, the lessee typically has the option to purchase the equipment.
Benefits of Leasing Construction Equipment
Leasing allows construction businesses to access the latest equipment without a large upfront cost, making it easier to keep up with advancements in technology. These are the main advantages of leasing construction equipment.
- Flexible payment terms. Leasing allows for flexible payment terms, such as monthly, quarterly, or annual payments, making it easier to manage cash flow.
- Tax deductions. Because they are lease payments, your monthly payments can be fully tax-deductible as an operating expense. This is a huge tax advantage that businesses can take advantage of to maximize their profitability while providing the tools they need to grow.
- Borrowing capacity. Using leasing will not reduce your creditworthiness in the eyes of the banks. Leasing equipment won't decrease your borrowing capacity, giving you financial flexibility to get all the necessary equipment for your successful business.
- Sales tax spread on the lease term. By transferring the ownership of your equipment to us, our lenders pay the tax for you on your behalf. You can keep the money in your cash flow and make payments over time without upfront tax concerns.
Types of Leases
There are three types of leases available: capital leases, operating leases, and lease-to-own agreements. Each has its advantages, so it's important to consider which of the financial leases is best for your business before entering into an agreement.
Capital leases offer a long-term lease solution, typically for the entire useful life of the asset. At the end of the lease period, the equipment is transferred to the lessee.
This type of capital lease is designed for businesses that want to keep the equipment for a longer period. These are the main benefits:
- The lessee has total control over the leased equipment.
- The equipment will become a part of the lessee's assets.
- The lessee can claim depreciation expense on the leased asset.
An operating lease is a short-term solution, usually lasting a few months to a few years. The operating lease usually involves the lessee renting the equipment for a set period, and once this period has ended, the equipment is returned.
This type of short-term equipment lease is best suited for businesses that want the latest equipment without a significant upfront cost. These are the main benefits:
- It allows businesses to upgrade their machinery regularly.
- Lower monthly payments.
- Minimal upfront fees.
Lease-to-Own agreements are essentially a combination of capital and operating leasing. With this type of lease, the lessee makes monthly payments, and at the end of the lease period, they have the option to make a down payment to purchase the equipment.
This lease is designed for businesses that want to own the equipment at the end, but do not want to pay the full purchase price upfront. These are the main benefits:
- It allows businesses to pay the purchase option to acquire the equipment.
- The equipment becomes a part of the lessee's assets.
- Low monthly equipment lease payments.
Equipment Leasing Agreements
When leasing equipment for construction, businesses need to consider the specifics of their lease agreement. Here are some key elements a leasing equipment purchase agreement should contain:
- Identification of the equipment to be leased. It's essential to be specific about the equipment you are leasing to avoid any confusion in the future.
- Lease terms and conditions. It's crucial to have specific dates, monthly payment amounts, non-payment penalties, and any other special conditions that could affect the lease agreement.
- Delivery and acceptance. Ensure there is a delivery date that is agreed upon, and the equipment is in proper working order upon delivery.
- End of lease. There must be a specified lease term, which defines how long the lease lasts and how the lease ends.
- Lessee's Responsibilities. It should be clear what responsibilities the lessee has, including maintenance, liability insurance, and end-of-lease obligations.
What is a Lease Broker?
A lease broker is a person or company that does lease financing and acts as an intermediary between the lessee and leasing companies. Lease brokers can help businesses secure the best leasing deals for their needs, as they have extensive knowledge of the industry and available leases.
For whom is equipment leasing intended?
Equipment leasing is intended for a wide range of businesses, from small startups to large established companies. It's beneficial for businesses that require advanced equipment to efficiently manage their projects but lack the funds to buy it outright.
Leasing allows businesses to access equipment without the burden of large upfront costs and the financial risks that come with the operating costs of owning the equipment outright. Therefore, any business that needs construction equipment for its operations can benefit from leasing.
Leasing vs. Buying equipment
Ultimately, not just the price though, whether to lease or buy construction equipment depends on the needs of your business. Leasing can be a good way to keep equipment up-to-date and avoid the high upfront cost of purchasing.
Leasing vs. getting a loan
Loan or leasing construction equipment are two popular ways for businesses to access the equipment they need. The primary difference is that with leasing, the lessee returns the equipment or has the option to purchase it at the end of the lease term, whereas with the loan, the borrower owns the equipment once the loan is paid off.
The benefits of leasing equipment over getting a loan include lower upfront costs, lower monthly payments, and the flexibility to upgrade equipment with changing needs.
Tips to Help You Find the Best Construction Equipment Leasing Company in Canada
Whether you're in Calgary, Vancouver, Montreal, Toronto, Winnipeg, Saskatoon, or anywhere else in Canada, these tips can help you find the best construction equipment leasing company.
Determine Your Requirements
Consider the type of equipment your business needs and what terms you need for the financing terms, payments and length of lease.
Gather a list of potential companies and read up on their services, customer reviews, terms & conditions, and pricing. Make sure that they are specialized, like Fincap, in the financing of construction equipment.
Make sure to check the reputation of the company through online reviews or industry associations.
Compare the different offers from various companies to determine which one will offer the best fair market value for your business.
Contact each of the companies individually to ask any questions you may have about their services or terms & conditions before signing a contract.
Type of construction equipment that can be leased
A wide range of heavy equipment can be leased by construction businesses.
Excavation lease equipment
Excavators, backhoes, and bulldozers are commonly used to excavate and remove soil, rocks, and debris in order to prepare a construction site.
Demolition equipment leasing
When it comes to demolishing buildings and structures, heavy equipment like demolition excavators, bulldozers, and cranes are employed to accomplish the task.
Foundation work equipment leasing
To install deep foundations, heavy equipment like pile drivers and drilling rigs are needed. Pouring and moving large amounts of concrete is made easier with the use of heavy-duty mixers and pumps.
Earthmoving equipment leasing
To move earth, level surfaces, and create terraced landscapes, heavy equipment like graders, scrapers, and bulldozers are utilized.
Road and pavement construction equipment leasing
Building and repairing roads and pavements necessitate the use of heavy equipment like asphalt pavers, rollers, and milling machines.
Landscaping equipment leasing
Reshaping the landscape, moving large rocks and boulders, and installing irrigation systems require heavy equipment such as excavators, bulldozers, and loaders.
Material handling equipment leasing
Moving and positioning heavy materials and equipment at construction sites necessitates the use of heavy equipment such as forklifts, cranes, and hoists.
Leasing construction equipment can help businesses save money and access the latest technology. It's important to understand the different types of equipment leases available, lease agreements, and how to select the best leasing company for your needs. Lease brokers can be valuable intermediary resources to help businesses find the best leasing deals. When considering leasing, it's essential to compare leasing versus buying or loan and determine which option makes the most sense for your particular business needs. Choosing the proper leasing company and agreement enables businesses to utilize cutting-edge equipment they may not have afforded otherwise, paving the way for growth in the construction industry.