This article was written exclusively for ForConstructionPros by Balboa Capital, a nationwide provider of small business loans.
Many construction company owners finance equipment, but not all of them fully understand how leasing can affect their financials. There are several things to keep in mind when getting an equipment lease that can have a significant impact on your business. And for the remainder of 2013, the Section 179 Tax Deduction offers a generous write off when you purchase or finance new or used qualifying equipment. This article provides information on how your lease can affect your construction company’s financials in greater detail.
Save cash, reduce expenses
Business owners can maintain their cash and reduce the risk of purchasing new equipment with an equipment lease. Instead of making a lump sum payment and using a large amount of working capital, a construction equipment lease only requires fixed monthly payments. In addition, leased equipment does not appear on the assets or liabilities columns of corporate balance sheets but rather as an operating expense on income statements. Having little or no liabilities will make a balance sheet look stronger. By not owning the construction equipment, business owners reduce the risk of having to maintain the equipment and consider its scrap value or resale value. The equipment can be operated as normal and simply be returned at the end of the lease term.
Preserve business credit
Another benefit of leasing for construction companies is that it preserves business credit. When the time comes for you to expand your business, or apply for a construction business loan, you need to have a strong credit score. An equipment lease will not lower your credit, and it helps to strengthen your company’s cash flow. Regular fixed payments are made until the end of your equipment lease term and, if paid on time, can even help your company’s credit.
Generous tax deductions
Section 179 is a tax deduction that every business owner, especially those in the construction industry, should know about. Since construction business owners work with various types of heavy equipment, many of them take advantage of this tax write off. The current Section 179 Tax Deduction allows you to write off up to $500,000 of qualifying new or used construction equipment. For example, if you lease a new bulldozer valued at $50,000, your cash savings (assuming a 35 percent tax bracket) is $17,500. The total cost for the bulldozer, after tax savings, is $32,500. For specific issues regarding the Section 179 Tax Deduction, we recommend that you consult with your company’s tax professional.
Thoroughly understanding how an equipment lease affects your financials is important and will help your construction business grow and succeed.