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Construction Equipment Financing - Lease Or Buy?

Feb 24, 2008
The business owner has to consider two options when it comes to buying construction equipment. First of all there are primarily two paths to getting the construction equipment needed. Buying the equipment outright or leasing it. Both have advantages and drawbacks.

Business Loans Can Help Buy Needed Construction Equipment

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

Tax benefits of leasing equipment is one of the top benefits to the business owner. The IRS has made leasing 100% deductible and many business owners love this aspect of leasing equipment. The type of lease that gives this benefit is what is called a "true lease." 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 the lease is 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. We do, however, recommend consulting with a professional tax consultant for more information on the ramifications of the tax benefits of leasing.

The fact that you can often get the equipment that you need without any down payment is one of the primary benefits to some. Businesses, like start-ups, that are not flush with cash love this aspect if they can find it. Lease payments are typically fixed for the term of the lease and give the business owner a good idea what to budget.

A Final Thought on Leasing Equipment verses Buying

When considering leasing verses buying equipment, it is important to consider the future and the long term effects to your business. Look at both sides of the coin, and determine the best route for your business.
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