It’s no mystery that purchasing a new excavator outright would be a bucket-load expense. Without the cash on hand, it could feel impossible to acquire a new one for your business. With recent price surges and uncertainty in the economy, you may question whether or not it’s the right time for a major investment.
Let’s suppose purchasing a piece of equipment of this calibre is out of the question. Would it be more practical to rent an excavator, finance it, or sign a lease?
The Differences Between Renting, Financing & Leasing an Excavator
The most common ways to acquire equipment quickly with lower upfront costs are renting, financing and leasing. Whether you’re considering the choice of a vehicle, excavator or another business asset, knowing the pros and cons of each will help you decide which is the best option for you.
Companies can rent equipment to you such as frontloaders and excavators. Renting allows you to have access to the equipment for a set price and no commitment. This is particularly a good choice if you have no idea what type of equipment you want.
There are plenty of cons to renting. Most notably, the equipment will never belong to you and rental payments won’t increase your business's value long term. As with renting anything else, you’re generally paying a higher rate compared to leasing and financing. It’s also a matter of machine utilization. A rule of thumb is that if you’re using any equipment for 60% of a given timeframe, then it’s probably not worth renting as it’s costing you more. Depending on your operation’s circumstances, you may have to invest in another piece of equipment down the line, so leasing or financing might have been a better option from the start.
Heavy machinery financing is an alternative that could suit your business more than renting. If you’re a contractor or business owner that knows they will need to buy an excavator eventually but you don’t have the means for it currently, then financing makes the most sense for you. Financing is a popular option, especially if interest rates are relatively low. The main benefit is you’re directly investing capital in your business long-term into equipment that you own. The only drawback is that you’re taking on debt to pay it off over the timespan with interest on top of it.
Somewhat a hybrid between financing and renting, leasing allows you to use a piece of equipment for a set time but at a lower rate. You typically agree to lease equipment like trailers, trucks or excavators in 12-month increments. The great thing about leasing is that it can provide you access to brand-new equipment with plenty of options after the lease.
If you end up liking the machine towards the end of the lease, you can simply buy it at the end of the term. Conversely, it’s also true if you don’t like the equipment or aren’t satisfied with the price, then there’s no commitment after the lease.
Consider Your Scenario
It’s important to evaluate what your business situation looks like if you’re considering talking to a broker. What’s your current cash? Do you have plenty of upcoming contracts that require new or updated equipment? Are there easy opportunities to accept more business if you had access to a new excavator? How long would you need a piece of equipment for?
As you may notice, leasing does provide some of the most flexibility of the above options and is a safe middle-ground when acquiring an excavator. Leasing machinery and investing in your business, all with no down payment is an attractive option. Discussing the end-of-lease options with a broker or financing company is a good call, especially if you’re planning on buying the equipment.
However, make the call that makes the most financial sense for your situation. You can always talk to us so we can further understand your specific operation and what you need.