All options should be carefully examined given the ongoing weakness in the construction outlook. “In many cases, rental is the way to go for contractors to protect their cash flow and capital base,” says Bartecki, “and dealers have to be prepared to support their customer base whether they need to own or rent equipment.”
Questions to Ask Before You Acquire
Before acquiring equipment, Paul Oh, finance manager, Kubota Credit Corp., recommends asking yourself:
Do I need to update the equipment every two to three years? This may come into question for those who worry about unpredictable maintenance costs as equipment ages, or are located in a state with strict emissions standards that may require more frequent equipment updating.
Do I require the equipment to be aligned with the project timeline? With a lease, you can easily project expenses for the project, and you have the flexibility to walk away from the equipment at the end of the project, or extend the lease if another project arises.
Is my current cash flow not expected to meet my future equipment needs? For example, with Kubota Credit Corporations’ 0% financing, if you compare a 36-month term lease payment vs. loan payment, the lease payment is 60% of the loan payment. With the cash flow savings, you can purchase additional equipment you need or buy the bigger equipment you could not afford through a loan
Do I have any existing loan covenants that prohibit me from taking on additional debt or capital expenditures? Banks usually place restrictive covenants in the form of financial ratios to determine financing. The financial ratios provide lenders with predictive warning signs of loan repayment. Generally, leasing companies do not require these restrictive covenants because their risk is reflected in the pricing, and they have strong asset experience and are comfortable with equipment valuation and remarketing.