The construction business is big in North America, with an estimated value of 1.3 trillion dollars in the United States alone. As such, many people who are thinking of starting a construction company will need to procure heavy equipment in order to run their business.
However, heavy equipment tends to be quite expensive, so many entrepreneurs will turn to heavy equipment financing in Canada in order to obtain their heavy equipment vehicles. Here, we will break down the advantages and disadvantages of heavy equipment financing in Canada.
Obtain the Necessary Funds
The first pro is that you will get the money you need in order to purchase the vehicles that you need to operate your business. Also, you will be able to start running your business immediately, instead of having to wait for the cash to flow into the business in order to acquire the equipment.
Most loan applications are relatively simple, and most lenders will only require that you provide proof that you can pay back the loan as well as proof that you have a viable business. Then, you may have to wait for a few days before your loan application is accepted before you will be provided access to the capital.
Take Care of Cash Flow Problems
As previously mentioned, heavy equipment does not come cheap, so paying in cash may bring your business to a startling halt. In other words, most startups or small companies simply cannot afford to run their business and buy expensive heavy equipment at the same time.
However, heavy equipment financing will negate any cash flow issues you may have, as you will only need to put down a small down payment in order to obtain the vehicles. In addition, most monthly loan payments, even when factoring in interest payments, are quite affordable, so they should only make a small dent in your monthly operational cash flow.
You Don’t Need Extra Collateral
The majority of the loans that are currently available require that borrowers put down some form of collateral to qualify for the loan. However, heavy equipment financing works a little differently in Canada, as you don’t need to put down any additional collateral to obtain the loan.
Instead, the heavy equipment itself serves as the collateral. As such, if you fail to pay back the loan in full, then the lender will seize the heavy equipment and sell it to recover the balance owing..
Obtain Tax Deductions
Buying certain equipment may allow your business to obtain tax deductions that can result in savings that can help you expand your business. In fact, you may be able to get deductions of up to the full cost of your vehicle or apparatus if it qualifies.
If the heavy equipment that you purchased is intended for business use, then you may be able to obtain tax deductions after having purchased the heavy equipment, which means you will need to pay less in taxes come tax season.
Enjoy Flexible Terms
Yet another benefit of a heavy equipment loan is that it will usually include very flexible terms. For instance, you may be given several years to repay the loan in its entirety, depending on the assessed value of the heavy equipment in question.
Furthermore, some lenders may require that you make payments monthly, while others may allow for payments to be made once per year. Others may accept semi-annual or even quarterly payments as well, so there are many payment options and terms to choose from, depending on which lender you end up signing with.
Enjoy Full Ownership
The biggest difference between heavy equipment leasing and a loan is that you will have the option to buy the heavy equipment after you have paid it off in full. Ergo, you can rent out the vehicle after you have paid back the loan so that you can make some money off of it.
Or, if you no longer need the heavy equipment or are thinking of upgrading, you can sell the vehicle to the highest bidder. In fact, you can also modify the heavy equipment to serve your current business needs, which is something that you cannot do with a rental without paying “damage” fees.
Its Usage is Limited
While heavy equipment financing has many benefits, it does have a few drawbacks. For instance, you can only use a heavy equipment loan to purchase heavy equipment, such as trenchers, backhoes, excavators, loaders, graders, bulldozers, and tractors.
If you want to buy other types of construction equipment, then you will need to procure a different kind of business loan to finance them.
You’re Solely Responsible for the Machinery
When you take out a loan for a piece of heavy equipment, you should be prepared to take full responsibility for the vehicle as well as its condition. You will need to pay for professional maintenance and servicing to ensure that the vehicle is in optimal condition.
You will also be in charge or any, and all repairs, which is different from how renting a heavy equipment vehicle is. That is, when you lease a vehicle, it’s the rental company that will pay for the maintenance and servicing of the vehicle. You will need to spend some money to maintain the equipment if you take the loan route.
They’re Not for Short-Term Use
If you want to take out a loan to buy heavy equipment for long-term use, then doing so is a sound business decision for most construction companies. However, if you only plan on using it for 1 or 2 projects, then taking out a loan does not make much business sense.
Instead, we would suggest that you rent or lease heavy equipment if you only intend on using it for a brief period; as the cost for doing so will be lower than the amount needed to pay for new equipment.
If you would like to learn more about the pros and cons of heavy equipment financing in Canada, then please visit our website.
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