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Construction Equipment Financing - Lease Or Buy?


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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.

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.

Leasing is great because you can often get the equipment that you need without any down payment. This is wonderful for businesses that do not have the extra cash. Lease payments are typically fixed for the term of the lease and give the business owner, a good idea what to budget.

Choose The Best Route For Your Construction Business

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.
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