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Construction Equipment Financing - You Must Decide
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Construction Equipment Financing - You Must Decide

By: Chris Chandler

In construction equipment financing, there are two routes to go. Lease or buy. You must consider these options if you are going to be able to plan for the future of your construction company. Both options have their own merits and drawbacks.

Advantage of Buying Construction Equipment Using a Business Loan

Construction equipment in most cases does not become obsolete during the life of the equipment. Especially if they are maintained well. When you look at bulldozers, backhoes, and other digging equipment, they have been essentially the same for years. With proper maintenence, construction equipment lasts for years past a lease and you are no longer saddled with a bill.

Owning the equipment outright can be a huge increase in profit margin once the debt is paid off. Once this happens your business accrues equity. This equity can be used later on down the road to help secure business financing if the need arises. However, we have found out that unsecured lines of credit offered the small business person all the extra working capital they need. Finanlly, you can also count off the equipment using yearly depreciation.

The Benefits of a Leasing Construction Equipment

Tax benefits of a lease are the #1 reason for leasing to the average business owner. A "true lease" provides a 100% deduction according to the IRS. If you do not know what we mean by a true lease, the Internal Revenue Service uses the term true lease to define how a lease 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.

Choose The Best Route For Your Construction Business

Whether you choose buying or leasing, you need to consider all the facts. Things like tax benefits, your business plans, etc. are some of things you need to look at. I would advise that you consult with a tax consultant and think long and hard about the long term goals of your construction company.

Article Source: http://articlenexus.com

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