Your business needs the right compact construction equipment to run efficiently and meet workload demands. For many construction companies, that means a need for new or used equipment. Unfortunately, bad or non-existent credit can make bobcat financing difficult. Construction equipment leases offer an alternative to traditional equipment loans. Keep reading to learn more about the differences and similarities between loans and leases and what situations might make a lease an attractive choice for your growing business.
Understanding the Loan and Lease Options for Compact Construction Equipment Financing
Both loans and leases can be sensible choices depending on your business situation and financing needs. They are convenient ways to acquire new or used compact construction equipment when you do not have the full cost on hand. Both also use the equipment financed as collateral, and banks can assume ownership if you fail to make the required payments. They also share interest rates, monthly payments, and a set repayment term. However, they also have some differences.
Length of Time
For the most part, leases are short-term financing vehicles, with repayment terms commonly ranging from two to five years. Loans, on the other hand, might extend to ten years in some situations. Keep in mind that any loan or lease terms will restrict it to no longer than the expected useful life of the financed compact construction equipment.
Buyout Options
When you sign a loan for a piece of construction equipment, you agree to pay for the full value. Once you have satisfied the terms of your loan, you generally own it outright. In some cases, a small buyout may be included in the final payment. However, leasing is similar to renting. If you decide to keep the compact construction equipment at the end of your agreement, you will need to buy it out by paying a residual.
Down Payments
Loans typically require a down payment. That might be as low as 10% of the equipment’s value, but borrowers with poor credit may need as much as 30% to secure financing. Leases tend to require lower or no down payments. However, you will face a residual at the lease’s end if you decide to keep the equipment.
Why A Lease Might Be a Good Choice for Your Business
While many business owners will argue the benefits of using loans to purchase equipment, there are plenty of reasons why a lease might make more sense for you. Here are just a few things to consider before making a financing decision.
How Long You Plan To Keep the Equipment
Many leases are short-term financing vehicles. So, if you are planning to invest in new equipment every few years or think your business will outgrow a compact excavator in that timeframe, it makes sense to examine leases when you look at financing options.
Your Business Credit Profile
Businesses with stellar credit don’t usually have trouble finding loans and leases. However, if your business credit has taken a hit recently, you might face rejection at commercial banks. Leasing is a popular choice for compact construction equipment financing with bad credit.
How long has your business been in business? If it is relatively new, you may have to rely on your personal credit history. That can be problematic if your credit is less than pristine. Sure, you can get some start-up business loans with bad credit, but you will probably pay exorbitant rates.
What Monthly Payment You Can Afford
Leases often have a substantially lower monthly payment when compared to a loan. For the most part, that is because you are only financing a portion of the equipment’s cost. There is also the deductibility of payments. Many businesses choose to deduct lease payments as a business expense instead of a depreciating asset. So, if minimizing monthly payments and streamlining tax deductions are more important to you right now than a long-term equipment investment, a lease might make more sense when it comes to bobcat financing.
Choose the Right Financing For Your Compact Construction Equipment Needs
When you need to finance compact construction equipment or even a commercial title loan we can help. First Capital Business Finance serves businesses of all sizes and credit profiles, making us an ideal choice for compact equipment and bobcat financing. In many cases, we can offer equipment financing bad credit when other lenders won’t. Call us at 888-565-6692 or download an application today to get started.
Compact Construction Equipment: Loans Vs. Leasing | First Capital Business Finance
