Heavy equipment leasing vs financing for trucking

Having the right heavy equipment can make all the difference when it comes to efficiency and profitability. But should trucking companies lease or finance that equipment?

In this article, we explore the pros and cons of heavy equipment leasing versus financing. We’ll cover topics such as:

• Types of heavy equipment used in trucking 

• How heavy equipment leasing and financing work 

• Financial considerations when deciding to rent or buy equipment 

• Equipment maintenance and repairs

• Rent to own equipment

This guide to heavy equipment finance will help you make informed decisions about whether to rent or purchase heavy equipment. Keep reading to learn more about construction equipment finance.

Which heavy equipment is used in trucking?

Trucking requires many kinds of equipment, including:

• Trailers

• Front end loaders

• Pallet jacks

• Forklifts 

• Cranes

• Tractors

• Bulldozers

• Excavators

• Conveyor belts

These types of equipment can be used to load and transport freight throughout the supply chain. Many are also useful within the construction, manufacturing and material handling industries. 

How heavy equipment leasing and financing work

Heavy equipment leasing and financing work in the following ways:

Leasing

Under leasing agreements, equipment leasing companies purchase the equipment you need and lease it to you for a fixed period. After making regular payments for the lease’s duration, you may return the equipment or purchase it for a predetermined price.

There are two main types of machinery leases:

Operating lease – Under an operating lease, the leasing company owns the equipment and provides it to the lessee for a specific period. At the end of the period, the lessee can either renew the lease, return the equipment or purchase it.

Finance lease – This type of machinery leasing is often referred to as a lease to own equipment agreement. Under its terms, the lessee enters into an agreement to purchase the equipment at the end of the lease period. The cost of the equipment is usually spread over the lease term. When the lease ends, the lessee can either return the equipment or purchase it for a predetermined amount.

A lease can be beneficial for businesses since it offers access to expensive equipment and technologies without substantial upfront costs. Additionally, it’s often easier to upgrade to newer equipment under a lease than a purchase agreement.

Financing

Heavy equipment loans for a new or existing company entails borrowing money to purchase the equipment outright. A lender will provide you with the funds upfront, and you will make regular payments over a predetermined period. 

The equipment serves as collateral for the loan, and if you fail to make payments, the lender can repossess it.

Should you lease or buy heavy equipment?

Choosing an equipment lease or financing is a personal choice. There are some pros and cons associated with both that you should consider:

Leasing

Pros:

• Lower upfront costs and no equipment loan interest rates

• No need to worry about maintenance and repairs

• Flexibility to potentially exchange or upgrade equipment as needed

• May be tax deductible under some circumstances

Cons:

• Higher long-term costs than purchasing

• No equity in the equipment under a traditional operating lease

• No option to customize the equipment to specific needs

Financing

 Pros:

• Ownership and equity in the equipment

• Complete control over the equipment’s use and maintenance

• Possibility to customize and modify the equipment to specific needs

• Potentially lower long-term costs than renting in an equipment finance agreement 

Cons:

• High upfront costs and equipment loan rates

• Responsibility for maintenance and repairs

• Depreciation of the equipment’s value over time

• Potential for unused equipment to become a liability  

What to factor into your decision

For many companies, the main consideration in a decision about equipment leases vs financing is upfront costs. To make a truly informed decision, however, you should also take the following factors into account. 

Transport

Consider the cost and logistics of transporting the equipment to your site. Can you afford it? Whether you buy or lease, find out whether the supplier or lender will include delivery costs across the monthly payments. Better yet, if possible, negotiate free delivery.

Equipment maintenance and repairs

Consider all maintenance needs, and find out if leasing companies include any special requirements in their agreement. 

If you’re buying used equipment, be sure to check the condition of the equipment thoroughly before making a decision. Look for signs of damage or wear and tear that may affect the machine’s performance. Ask for all maintenance records.

Upgrade flexibility

If you’re considering a lease, find out whether you can upgrade your equipment should your needs change. 

This isn’t usually an option with purchased equipment, but you may find a supplier with a 30-day exchange policy.

Tax and insurance implications

You may be able to deduct the full purchase price of new equipment the year that you buy it. Heavy equipment depreciation is generally calculated by dividing its cost by the number of years in its estimated useful life. 

You can also potentially deduct operating lease payments as rent. Speak to your accountant or financial advisor about your specific circumstances. And look into any special insurance requirements that may accompany a lease agreement.

Operational requirements

Ensure that you have skilled operators who have received proper training to use your equipment safely. Consider the expense of any necessary training or certifications. 

Some types of equipment may unfortunately be too specialized to lease, removing the possibility of heavy equipment leasing altogether. The type of cargo, distance and duration of your hauls may play a role in your decision-making.  

Long term business goals

It’s important to look at your company’s long term business goals in order to decide between leasing and owning. If your business intends to use these pieces of equipment for a long period of time, then buying may be better. You will benefit from building equity. 

On the other hand, if you’re focused on short-term flexibility and cost management, a decision to lease heavy equipment may be a better. 

Research your heavy equipment financing options

The decision to lease or buy heavy equipment ultimately depends on your specific business needs and financial situation. Carefully consider the benefits of leasing vs buying equipment. Take each of the factors above into account for a better understanding of which approach is a better fit.

And above all, don’t rush into any decisions that may negatively impact your cash flow or credit score. 

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