Construction equipment financing has two primary options, loan or lease. As the owner of a business that typically uses construction equipment, the business owner has to consider both options which have their own advantages and disadvantages.

Advantage of Buying Construction Equipment Using a Business Loan

Bulldozers, backhoes, and other digging equipment are some of the equipment necessary for starting a construction business is very expensive. Buying the equipment outright can be very cost prohibitive for the business start-up, but a business loan can level the playing field. If the construction equipment is maintained properly, it will last years past what a lease payment offers.

Also once the loan is paid off, the business owns the equipment. This is very valuable in the fact that your business gains collateral which builds accrued equity. This equity can be used later on down the road to help secure working capital if the need arises. However, we have found that unsecured lines of credit offered the small business person all the extra working capital they need, with requiring collateral. Futhermore, the equipment that is bought can be counted on taxes as depreciation.

The Benefits of a Leasing Construction Equipment

The primary benefit of leasing construction equipment is that it offers great tax benefits to business owners. This is especially true in terms of what is called a “true lease”, where you get a 100% deduction. If you do not know what we mean by a true lease, the Internal Revenue Service uses the term “true lease” to define how it is structured.

When structured as a true lease, the end-user can claim the entire lease payment as a business expense. To qualify for this status, the equipment must be declared at fault fair market value at the leases end. While all this sounds complicated, it really isn’t but we do recommend consulting with a professional tax consultant for more information on this.

The leasing company will often give an option to buy the equipment following the terms of the lease. Another benefit to leasing, is that business owners an often enter a lease agreement without a down payment. This is great for start-up businesses that do not have a lot of cash on hand.

Something To Think About When Considering Leasing Verses Buying

Whatever route you choose, you need to consider where you need to put the money, the long term effects, how much you will save in terms of tax breaks and more. I would advise that you consult with a tax consultant and think long and hard about the long term goals of your construction company.