Leasing construction equipment, both new and used, is a huge part of Canada’s equipment financing industry. The fact that used equipment can be financed at satisfactory rates terms and structures is sometimes news to Canadian business owners and financial managers.
The reality is that this type of financing is a somewhat specialized area of finance and we urge clients to seek a trusted, credible and experienced lease and financing consultant or advisor in this area of Canadian business financing.
Used equipment, particularly in the construction industry, (but in reality a variety of other industries) is financed to the tune of hundreds of millions of dollars annually.
The equipment plays itself out in a variety of different ways – Companies grow, the acquire other firms, some firms go, unfortunately, out of business, yet at the same time the values of equipment hold up significantly due to the quality and nature of the products.
Naturally we have just gone through one of the most difficult times in the global economy ever, and, as such, for some of the aforementioned reasons there is a variety of equipment for sale and for refinancing.
We would point out to clients that it is very prudent to liken the acquisition of used construction and heavy equipment to renewing your mortgage. By knowing you are pre-approved at certain rates and structures gives you significant purchase leverage when negotiating a final price. Even though some industries and sectors, geographic and otherwise are in a slump there is still a deal to be made on a variety of heavy equipment.
When you are acquiring used equipment, construction or otherwise, you should be looking for the same type of leases that you would entertain for other business equipment financing. You have, as always, two options – lease to own, known as a capital lease, or a ‘lease to use’, more commonly known as an operating lease. Given the high dollar values of some of the larger equipment it clearly might make sense to entertain an operating lease if that type of lease can be negotiated satisfactorily. That comes of course with off balance sheet flexibility, and, as importantly, the ability to purchase, upgrade or renew at the end of the lease; and that’s your decision at the time, not the lessors!
Just look at the benefits of such financing. If you can derive both productivity and profits from a piece of used equipment, and get financing in place that is satisfactory in overall pricing, terms and structure you have saved many thousands of dollars in the purchase price.
All of the traditional flexibility that is associated with lease financing accrues towards used equipment financing also – they include better cash flow management, the ability to control obsolescence, and the ability to put ‘good debt ‘on your balance sheet – i.e. assets that will be used for production and profits. You should also remember that you can negotiate to include soft costs in your used construction equipment financing – they might include warranty, maintenance, delivery and installation.
Years ago the American firm CIT did a study on why contractors and firms leased equipment – the results were very interesting:
