Options for Aquiring Heavy Equipment Blog
Options for Aquiring Heavy Equipment Blog

Options for Acquiring Heavy Equipment

Estimated read time: 8 minutes

When you need to acquire new or used heavy equipment, there are several options. First, you need to evaluate your equipment needs to help you determine whether you should buy, lease or rent equipment. Understanding the options available and how their benefits can help decide what's best for your business.

Explore this guide to acquiring heavy equipment to learn more about the benefits of leasing versus buying equipment, as well as the different paths toward equipment ownership, including cash purchases, financing and renting. You will also get insight into the pros and cons of each option and why it could makes sense to expand your equipment fleet. 

4 WAYS TO ACQUIRE HEAVY EQUIPMENT 

It's important to consider the factors that may impact your decision before you acquire heavy equipment for an upcoming job. Model and size are obvious considerations, however, some equipment may be needed temporarily or for a specific application, while other equipment can be used for multiple jobs. For example, a more versatile machine will enable you to utilize it in multiple applications and for different projects. So, it's necessary to evaluate the usage for the equipment you plan to acquire to ensure you make the right investment for your business. 

In addition to purchasing, renting or leasing the right type of equipment for your business, there are several options when making your acquisition. From cash payments to financing or renting, you have many ways of acquiring equipment and expanding your fleet.

Options to Aquire Heavy Equipment
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Options to Aquire Heavy Equipment

1. CASH PURCHASE

Your first option in acquiring heavy equipment is to pay cash to purchase it outright. A cash purchase of equipment has both advantages and disadvantages, particularly in how paying for equipment outright impacts cash flow and results in different tax implications.

  

Benefits of Paying With Cash

  • No additional fees: The greatest benefit of paying in full at point of sale for equipment is that you won't pay more than the sticker or negotiated price because there are no interest payments.

  • Smooth transaction process: Typically, paying in full for equipment at point of sale is a fast transaction because additional time is not required for financing documentation, evaluating credit worthiness and approvals. 

  • Increase business assets: A cash purchase of heavy equipment is considered a capital expenditure, meaning it’s recorded on the balance sheet as an asset. Assets increase the valuation of a business and can create new financial and growth opportunities.

  

Disadvantages of Paying with Cash

  • Risk of impacting cash flow: In business, cash is king, meaning that a capital cost outlay, like the purchase of a new excavator, can impact your future cash flow if business revenues should unexpectedly decrease.

  • No operating expense deductions: Buying heavy equipment outright can prevent a business from being able to deduct monthly operating expenses, potentially increasing the annual tax burden. Consult your tax professional or accountant to find out more about the tax deductions you may qualify for.

  • Budgeting for depreciation: In business accounting, a capital expense, like heavy equipment, should be depreciated over the expected service life of the equipment. To plan for replacing this equipment in the future, businesses that purchase equipment outright must set aside a percentage of their monthly budget, which can be difficult to do during less profitable times.

2. FINANCING

Financing heavy equipment via a loan is a great option if you don’t have the capital available or don’t want to purchase equipment outright, but are interested in equipment ownership. Loans are a type of financing that provides you with the entire amount needed to purchase the equipment in full while paying back the lending institution over a fixed period. Business owners can apply for business loans, including business lines of credit or working capital loans, to help cover the cost of an equipment purchase.

Financial institutions like Cat Financial can help you buy heavy equipment by making equal monthly payments over a fixed term length. Loans usually require some form of collateral, such as a cash down payment or an existing asset. Businesses can borrow money against assets like properties or other machines that do not currently have a lien on them. Learn more about heavy equipment financing from Cat Financial.

   

Benefits of Financing

  • Keep your cash: When you finance your equipment purchase, your business can save capital for other business needs. 

  • Build equity: Owning equipment adds equity to your business, which you can then leverage to borrow more money or potentially earn a profit on resale or trade-in. 

  • Build business credit: For new businesses or businesses that don’t have a long credit history, financing your heavy equipment can help build your business credit rating and improve your ability to get financing for other business investments in the future. And, at Cat Financial, we don’t exclude businesses simply because they are new. 

  

Disadvantages of Financing

  • Carrying a liability: Until you own your equipment outright, your machine will be considered a business liability on the balance sheet. Liabilities can impact your business valuation.

  • Higher costs: Monthly payments of loans are typically higher than lease or rental payments and usually include interest on the principal amount, but special offers can sometimes offer no interest for a limited time. View equipment financing offers from Cat Financial.

  • Commitment: By purchasing equipment through a loan, you’re likely committing to that specific machine for the duration of the loan and beyond. It’s important to purchase the right equipment for your business to maximize your investment, including the right model and size. You’re also responsible for maintaining and repairing your equipment. With a lease (detailed below), you often return the asset before any major repairs are needed.

3. LEASING

Leasing is often considered to be a lower risk alternative to equipment ownership. A heavy equipment lease is an agreement between the customer and Cat Financial that enables you to use the equipment for a period of time and allotted hours. Depending on your lease terms, you may have the option to return the machine, extend the lease, or purchase the equipment when the lease ends. 

In most cases, leases are long-term rental agreements for which you don’t build ownership/equity in the equipment as you would with a loan. There are several advantages and disadvantages of leasing versus buying that you should understand before you make your decisions.

   

Benefits of Leasing

  • Lower monthly payments: Typically, the monthly lease payment is lower than a loan as you're primarily paying for the use and cost of the depreciation of the asset. 

  • Flexibility: We know that not all businesses are the same, which is why qualified customers can create a payment schedule that works for their business.

  • Multiple Options: At the end of the term, you decide what to do with the equipment. Extend the lease, return the equipment, or buy the equipment outright at a predetermined interval.

  

Disadvantages of Leasing

  • No equity: By definition, a lease doesn’t result in automatic equipment ownership, therefore your payments don’t go toward building up equity in your asset as they would with a loan.
  • Higher long-term costs: If you plan to lease for an extended length of time, the long-term costs can be higher than a loan because you aren’t paying down a principal value.

  • Restrictions on customizations: Because Cat Financial remains the legal owner of the equipment, you aren’t necessarily able to customize, modify or use the equipment under a lease agreement the same way you could with a loan or cash purchase.

4. RENTING

Your last option for acquiring heavy equipment is to rent it for a temporary period. Heavy equipment rentals allow you to get the equipment and work tools you need for as long as you need them without securing financing or entering into a lease agreement. With an equipment rental, you pay your provider a rental fee on an hourly, daily, weekly or monthly basis.

   

Benefits of Renting

  • Cost-effectiveness: If you need certain equipment for a short-term project, renting is a cost-effective way to acquire what you need without having to put money down or pay for ongoing maintenance costs. You pay a convenient rental fee that you can also claim as a business operating expense.
  • Flexibility: Rentals provide one of the most flexible ways to get the equipment you need when you need it. This flexibility is particularly convenient if there’s a special type of equipment or work tool you want for one-time use.

  • The ability to try before you buy: Equipment rentals give you the opportunity to test out the latest machinery and technology before you make a purchase investment. You can ensure you choose the right type and size for your project needs.

  

Disadvantages of Renting

  • No equity: The main drawback of renting heavy equipment is that you don’t own an asset and you're not building up the equity in your business that ownership offers.

  • Increased long-term costs: If you decide to extend your rental agreement or need to rent the equipment for additional or long-term projects, then the cost-effectiveness of renting diminishes over time.

  • Potential for limited availability: One risk of relying on equipment rentals is that during peak seasons, the equipment you need might not be available for the time you need it. When relying on renting to supplement your equipment needs, it’s critical to partner with a top rental provider that has an extensive network with sufficient options to choose from.

WHY EXPAND YOUR HEAVY EQUIPMENT FLEET?

Making the right decision about how to acquire heavy equipment can be time-consuming, but is critical to your financial success. Some of the benefits of expanding your fleet include:

  • Grow your business: To grow your business and increase the amount of work you take on or bid for, you need to have the right equipment. Expanding your fleet means becoming more productive and more efficient, making your services more valuable to the customer, leading to higher profit margins.

  • Win more projects: With a smaller fleet, you're limited in the number of projects you can take on at any given time. By adding more equipment, you can confidently bid on and win more projects.

  • Build equity: Investing in new heavy equipment increases your business equity. When you own your equipment, your business holds more assets, resulting in higher valuation. 

  • Earn tax benefits: There are many tax benefits to investing in new equipment. Since equipment is a business expense, it can be deducted from your tax burden. You may also find that your investment in new equipment is eligible for certain credits or rebates that can further improve your bottom line. It's best to consult your tax professional and accountant to learn more about potential tax benefits.


Options to Aquire Heavy Equipment
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Options to Aquire Heavy Equipment

FAQS ABOUT ACQUIRING HEAVY EQUIPMENT

Before acquiring machinery, it’s common to have some questions about how investing in heavy equipment can affect your budget and your business plans. Below are some answers to top frequently asked questions about acquiring heavy equipment:

1. What Credit Score Do You Need for Heavy Equipment Financing?

Financing machinery is not considered a significant risk for lenders since the equipment itself is the collateral that helps secure the loan. Therefore, heavy equipment financing is often accessible to businesses and individuals with a wide range of credit scores. 

Still, it's worth noting that lenders want to make sure you have a solid history of repaying creditors. They may use your personal credit score, your business credit score and your business earnings as deciding factors in whether to finance your equipment.

2. How Do You Qualify for Equipment Financing?

To qualify for equipment financing, lenders like Cat Financial want to make sure you currently earn enough income to cover your payments over the length of the term. They’ll often ask to see your bank statements, business financial statements or possibly your tax returns to get a clear understanding of your debt-service coverage ratio. Read more about equipment financing requirements

3. What Piece of Heavy Equipment Makes the Most Money?

To maximize your investment, it's best to acquire equipment that can be put to work in multiple applications when possible. For example, equipment that can be used for both digging and grading is more versatile than equipment that only has one function. 

Investing in the right equipment for the majority of your work can significantly impact your bottom line. It's recommended to invest in versatile, high-quality, productive equipment including Cat® excavators, wheel loaders, dozers, material handlers and more.

EXPLORE CAT® EQUIPMENT FINANCING OPTIONS 

If you’re considering replacing an old piece of equipment or interested in expanding your fleet, learn more about your equipment financing options, including loans and leasing. Discover the ways that Cat Financial makes acquiring heavy equipment fast and easy, so you can get what you need and get to work. There are many ways to save on Cat equipment including this special financing offer on used equipment or using your Cat Card to pay for parts, service, and more.

If you’re ready to get started, request a quote today to discuss your options.

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