Renting Vs. Financing Equipment
You’ve decided it’s time you need some heavy equipment or trucks. Maybe you’ve got some big contracts coming down the pipe, you’re growing or expanding your company’s capabilities, or you just need to replace your current heavy equipment. So how do you decide when to finance the equipment and trucks and when to rent what you need?
With pros and cons to both renting and financing, it pays to evaluate your company’s current situation and capabilities (financial and otherwise), your future plans, and carefully consider which method of acquiring equipment will be most advantageous to your business – and which is also simply going to make your life easier. Certainly, initial cost is a major factor in the decision process, but it’s not the only one – there are several things to consider when it’s time to gear up – usage, availability and more.
Here’s an overview of some of the things you should bear in mind before deciding when to buy and when to rent equipment.
1. Current financial situation
This seems like the most obvious factor to consider – do you currently have the capital to finance or is renting a better option for now? But you should look beyond your current situation and project your costs over several months or years. Although financing may be a larger one-time financial outlay, the cost of renting can add up quickly, and over a long period of time can end up costing you more – especially if the equipment isn’t being used for the entire rental period. And don’t forget: when you own, you can see a return on your investment when you sell. (Use our Quick Quote calculator to see what financing payments and down payment might be.)
You can reduce the initial financial impact of buying a piece of equipment in many different ways:
- Buy good quality used equipment – when you rent, you are often paying for the newest equipment with the latest technology; purchasing well-maintained used equipment can be cheaper than buying new equipment and may be more cost-effective than renting over the long term
- Finance your equipment purchase – give your company some extra financial breathing room by financing your equipment purchases and keeping your capital to run your business; when financing your payments would be much lower than rental payments
2. Cost of ownership vs cost of renting
It’s also important to estimate the cost of equipment ownership versus the cost of renting equipment. With ownership comes maintenance and operating costs, insurance and other fees, and those costs obviously vary from machine to machine. Renting is generally an inclusive cost, but given that a rental company has to turn a profit, you should consider that your rental fees will include the purchase price and the cost of ownership, both marked up. You will probably have to pay to transport the equipment to and from the rental store as well, over and over.
Fuel is a cost that is common to both owning and renting and needs to be considered for both. Roughly, one-third of your total expenses will be for the cost of fuel.
Talk to one of our Financial Specialists about the tax advantages of financing vs renting equipment for your business.
3. Length of project or job frequency
Of all the things to consider, project length or the frequency of jobs on the calendar could be the deciding factor in whether you rent or financing equipment. If it’s a short term job, or you need a specialized piece of equipment for a one-off job, then renting may make more sense. The risk, of course, is that if the machine isn’t being used for the entire time it’s rented due to changes in the project schedule or unforeseen hold ups, then you’re spending money on a machine that’s sitting and waiting, not making you money.
If you’re working on a long project, or if you’ve got several jobs on the horizon, then financing probably makes better sense given that rental costs add up quickly the longer a job goes on. And a multi-purpose piece of equipment (loaders, excavators, skid steers, forklifts, trucks etc.) that can be used for various projects is a great asset on any jobsite.
4. Equipment availability & usage
The big advantage of owing your own equipment is that it’s available to you 24/7 – “if you own it, you control it”, as the saying goes. You can react to unexpected changes in projects or project schedules, take on jobs at a moment’s notice and complete projects with less downtime.
Before you decide whether to rent or finance, you should weigh the potential risk of a rental company not having the machine you need when you need it. Owning can be a plus to potential clients too, who see it and know you’re not only equipped to take on their job, but are a going concern and a stable, trustworthy business.
5. Advantages of Financing/Leasing your equipment.
Are you familiar with Equipment Financing and Leasing? Do you understand the benefits? Some segments of the heavy equipment industry are performing very well. As a result of being highly profitable, there are needs for tax deductions. Traditional equipment financing/leasing offer large tax write offs for your business just as rental payments do but at a much lower monthly cost to you. This may fit your needs for 2019, and Axe Business Funding can provide many flexible options to get the equipment your business needs to grow.
At Axe Business Funding we want to give you all the information that may help you make an informed decission on what’s best for your business.