Investment in capital assets is crucial to make scalable strides in the construction industry. If you wish to purchase heavy machinery for your construction business, you primarily have two choices. You can either:
- Lease the equipment
- Buy the equipment on loan
But either choices have both upsides and downsides. In the end, the decision regarding renting vs buying construction equipment question rests entirely on your business operations and financial health.
Before you make a finance choice, consider these factors first:
- Urgency of the equipment
- Market value of the equipment
- Expected time of use
- Cashflow needs
- Tax implications
Additional Read: Top Trends in Construction Equipment Finance Market
Below, we compare the various pros and cons of the two finance choices for your perusal.
Pros and Cons of equipment leasing
Most lease terms typically do not require a down payment or collateral, so you can access the required equipment in no time. Even the payment terms offered on the equipment leasing are variable to help you meet your business-specific cash flow needs easily. You have the option to go for construction equipment rental of new equipment or an old one.
Before the lease is over, you can also purchase, return, or replace the equipment with an up-to-date one – based on business necessity. Moreover, you can claim tax deductions on your lease payments or monthly interest payments and reduce your tax burden.
However, equipment on lease is more expensive as compared to equipment loans, especially if used for a long time. In addition to a monthly equipment leasing payment, you will also pay interest but will not have the equipment ownership when the lease is over. Not to mention, equipment maintenance is shouldered by the lender who usually imposes certain conditions for equipment operations.
Pros and Cons of equipment financing
Equipment loans are self-secured loans since they use the equipment as collateral, so you do not have to use your personal or business assets. You can easily qualify for the loan and purchase updated equipment to compete in the market. And once the loan is repaid fully, you will have complete ownership of the equipment.
Most importantly, equipment loans are tax-deductible so you can save a considerable sum on your monthly loan repayments. You can claim depreciation on the new equipment and exemptions on the monthly interest payment of your equipment loan.
However, an equipment loan requires a sizable down payment; if you lack adequate funds, your cash flow will be affected poorly. You will also be responsible to carry out routine maintenance and repairs of the equipment. Therefore, in addition to monthly EMIs, you will have to take care of the maintenance costs as well.
Additional Read: What Vital Role does Equipment Financing Play in Reviving Business in Post Pandemic Period?
Equipment Leasing vs Financing – The Verdict
To make the right choice between equipment leasing vs buying, you must be mindful of your business’ financial health. Both the choices offer a way to use best-in-class, updated equipment but also varied costs. Fortunately, construction finance has become much easier today. For quick, competitive equipment loans or lease options, turn to Tata Capital. We offer customised solutions for most class of equipment. Get in touch for further details.