You need heavy machinery, like an excavator, a backhoe, or a crawler dozer, but aren’t sure how to get it for your job site. Before starting work, you have to decide whether to rent, lease, or buy the heavy equipment. It’s a big decision that can come with a hefty price. The global construction equipment market is expected to be worth $155 billion by 2027.
Luckily, you don’t have to purchase the equipment outright if you can’t afford it — two other great options are leasing and renting. Before choosing which route you’ll take, you’ll want to consider factors like cost, length of time needed, frequency used, and more. In this article, we highlight the top factors to consider when deciding to buy vs. rent vs. lease heavy machinery.
To begin, let’s define the difference between leasing, renting, and factoring:
Heavy Equipment Leasing:
Equipment leasing is the process in which a small business owner works with a lender to finance one or more pieces of new or used business equipment. Unlike a traditional bank loan or financing, leasing has flexible approvals, set monthly payments, and the option to own or return at the end of the lease term.
When you lease heavy equipment, you have a stable monthly payment for the equipment that is usually cheaper than renting, with a set duration for the lease. At the end of the lease, you can either return the equipment or own it. Leasing is perfect for a small business that cannot afford to purchase the equipment outright and want a lower monthly payment than renting allows.
Heavy Equipment Renting:
Renting equipment means that you do not own it, nor will your monthly payments lead you to eventually owning it like leasing will. If the equipment is specialized and not something you will often be using, renting is a good choice. However, if the equipment is something you will use regularly, renting can become expensive; the monthly payments for renting are often higher than leasing. A small business might not be able to make a 30 percent down payment on a machine that costs $250,000, but without that equipment, the business might not be able to stay open.
Heavy Equipment Purchasing:
Owning heavy equipment means you are purchasing it outright, and it is 100 percent yours. However, purchasing equipment is expensive, and the approval process for financing a purchase can be more difficult than the approval process for leasing. Purchasing equipment typically requires cash upfront or a high credit rating for loan approvals.
What factors should you consider when choosing to rent, lease, or buy heavy equipment?
Before you choose whether to rent, lease, or buy heavy equipment, you’ll need to answer several questions about your business and its machinery usage. We walk you through each of these considerations to determine what the best next step is for your company.
- What can I afford?
You’ll need to take a close look at your company’s finances, as well as the price of the machinery you need to obtain — factor in costs like licensing fees, maintenance, insurance, and operating costs. Determine whether you can afford to purchase the equipment outright. If you can’t afford it, renting or leasing may be the best option. However, keep in mind that renting equipment can cost upwards of $450 per day, depending on what you need.
However, even if you can afford to buy the equipment, you may not want to. You have to decide whether the other factors would make it worth it.
- What can I qualify for?
You’ll want to price out the cost of renting the equipment and compare it to the cost of leasing and purchasing. Then determine which choice would be the most effective use of your company’s money. Keep in mind that you can often sell the machinery later and recover much of the cost of purchasing it. On the other hand, leasing equipment gives you the option of purchasing at the end of the contract, so it gives you the most flexibility.
- How often will I use the equipment?
Another consideration that can help you determine whether to buy, lease, or rent is how often you need access to the equipment. For example, a specialized piece of machinery for one task that your company doesn’t perform very often would likely make more sense to rent.
On the other hand, something like a backhoe that you plan to use on the next several gigs that you already have lined up might be better to lease or purchase. If you need them more than a few weeks or months at a time, leasing or buying will help you have 24/7 access to the equipment.
- How fast do I need the equipment?
If you want to be ahead of the curve and ready to go for a new job at the drop of a hat, leasing or buying equipment can help. That way, you don’t have to go through the rental process before starting work. It can lessen the downtime your company experiences, as well as increase revenue by helping you finish jobs faster. Equipment leasing gives you speedy access to machinery along with a smaller price tag than purchasing.
But if speed is not an essential consideration for you, renting could work great for your company.
- Can I maintain it?
Owning a piece of heavy equipment comes with a lot of responsibility. You need to have somewhere to store it and pay for maintenance and licensing fees. Before jumping in and purchasing machinery, make sure you can take care of it as needed.
- What else should I consider?
For each job, you’ll need to load up the machinery, drive it to the worksite, and then unload it. You’ll need to have the right equipment for transporting heavy machinery, and you’ll also have to pay for any transportation costs. Make sure you can cover all these expenses before leasing or purchasing. Otherwise, look at renting.
Furthermore, if you buy machinery, it’s important to have insurance and corresponding licenses, as well as the cash to cover things like fuel.
Pro tips for equipment leasing or purchasing:
- Because it’s so expensive, if you’ll use the machinery for more than a few months, your best decision is to lease or buy it. You’ll get the most bang for your buck this way.
- Verify that the supplier is trustworthy and offers you a replacement guarantee in case the purchased machinery is defective.
Advantages of equipment leasing
Equipment leasing offers more flexibility than buying at a more affordable price than renting. It can be the perfect option for a company that needs equipment frequently and wants to purchase it but can’t afford to yet because:
- You don’t need a down payment, but you do need a ten percent deposit, which is returned at the end of the lease if everything is good. If your company can’t come up with the cash for a down payment to buy a piece of machinery, leasing doesn’t require one. You do have the option to buy the equipment at the end of the lease, in which case you do not get the deposit back.
- With equipment leasing, you make a stable monthly payment that offers a path toward ownership. You can predict how much you’ll owe each month — and the fee is applied toward the total cost of purchase.
- At the end of your lease, you can decide to buy the machinery outright or return it, no questions asked.
- Leasing heavy equipment is also completely tax-deductible under Section 179 of the IRS Tax Code.
Advantages of buying heavy machinery
Buying a piece of heavy equipment is a huge decision. However, there are several benefits to making the choice to purchase:
- The monthly payments can be lower since you can sign a longer contract, thus paying the full price off more slowly.
- Once you buy the equipment, it’s yours to use as often as you need it. You won’t rack up debt every time you need to take it to a job site.
- If you want to sell your equipment, you will be the only beneficiary.
Advantages of renting heavy equipment
If you decide renting is a better choice for you, there are several positive aspects of that, as well:
- You can choose contracts that best suit you and only use the equipment for as long as you need for a project.
- Your maintenance costs will be lower since you don’t have to cover standard repairs or damage.
- Renting doesn’t require as much cash up-front, so the equipment is easier to obtain without a lot of savings or a loan.
Let Cultiva Financial help you get equipment
If you need heavy equipment for your business, Cultiva Financial can help you lease it! We can provide you with the business financing necessary to lease the equipment, putting you on the path to owning the equipment in 24 to 48 months. Start your application for equipment leasing today!