With winter right around the corner, it is important to begin evaluating fleets to ensure you have the right equipment for snow and ice jobs. While you put countless hours into determining the right machines, implements and attachments to add to your fleet, how much time do you spend on selecting the right way to purchase new equipment?
Just as important as the machine you are purchasing is the way you pay for it. Selecting the right type of financing when you buy new equipment directly impacts your business. Feeling overwhelmed with the different options? Let’s walk through each purchase method and its benefits to help streamline the process for you.
When purchasing a new machine, there are multiple options to help sustain cash flow over time. First, you need to determine if you want to pay for the machine all at once, or if you would prefer to spread out payments over time using a lease or installment loan. If financing is the preferred method, it’s important to determine the right type of financing based on your unique business needs.
There are three primary types of financing: leasing, installment loans or revolving loans. Each type of financing has its own benefits, but all three offer an opportunity to generate revenue while paying down the balance.
Set up as a long-term agreement, an operating lease sets a fixed payment over a predetermined time, often a two- to three-year term. At the end of the term, you have an option to either purchase the machine or return it to the dealer. One advantage of an operating lease is that it can offer lower payments compared to other types of financing, which improves your cash flow throughout the year. Another benefit is that it allows you to rotate machines every two to three years, ensuring your fleet has new equipment. This can help reduce the risk of potential downtime, minimize exposure to maintenance expenses, and allow you to have the latest innovations and technologies available.
Another benefit to leasing is the ability to deduct 100 percent of your lease payment as an expense, reducing assets and liabilities because you do not own the equipment. Leasing also preserves bank lines of credit for other business purposes. Additionally, your dealer might be able to match the lease term with a warranty period. This ensures the machine is under warranty during the entire length of the lease.
It is important to consider how the equipment may be used before deciding to lease. Lease terms often restrict hours and require the machine to be damage-free when returned, which can be difficult to guarantee with normal wear and tear while operating. However, for snow- and ice-specific equipment, the machine is only used seasonally, so hour restrictions are not always an issue. When considering an operating lease, you should talk to your dealer about how you intend to use the equipment to determine if it is the right solution for you.
While installment loans also allow payments to be spread out over time, unlike a lease at the end of the loan term, the customer owns the piece of equipment. This means that there is no limit on hours and damage is not a concern, making it ideal for a customer that might put a lot of hours on a machine. If you decide to proceed with a loan, check with your dealer or lender to see if there are any special offers. Sometimes financial institutions offer incentives, such as 0 percent interest for a specific period of time, which can help you save money in the long run.
A revolving loan, or revolving account, is another financing option. This option only makes sense for smaller purchases, but still should be considered for your business. A revolving loan is essentially a credit account, allowing you to add parts, attachments, implements and other small charges, which can be paid off on a monthly basis. Financial institutions may offer incentives on these types of accounts as well. If you are managing multiple crews, this is ideal as multiple people can go to a dealership to get parts and other items as needed.
It is important to work with your dealer to discuss your equipment needs. For snow equipment, many pieces of specialty equipment are only used seasonally, so you might be able to finance equipment strategically to match the equipment usage. If you are buying equipment like a compact utility tractor or front mower, attachments and implements can allow you to use the equipment during winter months and can be rolled into the overall financing of the machine.
When you speak with your dealer or lender, it is important to have answers to a few critical questions that can help you determine the right type of financing for your business:
- How long am I going to use this piece of equipment?
- Do I want to own the machine or operate it at the lowest overall cost?
- Am I interested in keeping up with the latest technology?
- Is there a financial benefit at this time for us to lease vs. own?
Discuss your responses with your dealer or lender to help figure out what type of financing makes the most sense for you. Some manufacturers also provide financing, helping to streamline the process. These manufacturers are in communication with your dealer and familiar with your business needs, and offer customized financing, such as seasonal payments and lease damage waivers, to help you maximize your cash flow. With financing, there are often many options available depending on your business, so an expert can help figure out the best solution for you.
Also consider other options, including attachments, implements, maintenance and parts. Many customers don’t realize that extra options can be rolled into a financing package, allowing you to get the most bang for your buck. From snow blowers and brushes for year-round equipment to unique maintenance plans to ensure machines are up and running when snow arrives, financing packages can allow you to improve your cash flow and simplify your operational costs.
Getting Back to Work
Purchasing a piece of equipment can seem overwhelming, particularly when you are trying to determine a financing strategy that positively impacts your business. Work with an expert, such as your equipment dealer, who understands the pros and cons of each financing option, as well as your business, to help you make the right decision. Your dealer is committed to your business and strives to help you succeed. By understanding your options and your business needs, you’re going to have a new piece of equipment and be out working in no time.
Angie Harms is a tactical marketing planner at John Deere Financial.