Construction Manufacturing Equipment Financing – Options for New and Used Equipment

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OPTIONS FOR NEW AND USED EQUIPMENT HEAVY EQUIPMENT FINANCING

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        Financing & Cash flow are the biggest issues facing businesses today

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Construction Equipment Financing | 7 Park Avenue Financial

 

The Role of Construction Equipment Financing in Canada

Construction Manufacturing Equipment Financing plays a considerable role in the Canadian economy. Business owners and financial managers such as you want to ensure they have the best leasing and financing options available to them – It has been proven that financing equipment via leasing is very cost-effective.

 

Benefits of Matching Lease Terms with Equipment Use

One of the many essential features of such financing is the ability to match the lease term with your expected use and the residual value of the equipment.  Generally, lease financing for used and new manufacturing equipment can be arranged for terms varying from 3 to 5 years.

 

 

Understanding the Economic Life of Assets 

 

No one knows better than the business owner what the useful expected equipment life of the asset will be, and we encourage clients to match the lease financing transaction term with the asset's economic life.  The reality is of course, that trucks/rolling stock and  construction manufacturing assets  / heavy duty equipment have significantly longer useful expected values – (as compared to assets such as  technology and computers!)

 

 

The Importance of Consulting a Lease Financing Advisor 

 

We encourage clients to work with a trusted, credible, experienced lease financing advisor. The benefit of such knowledge can save you many thousands of dollars based on the overall rate, term and structure of your lease transaction.

 

Comparing Financing Options: Leasing vs. Loans

There are other financing options when it comes to acquiring such assets – those options could include a government small business loan or a term loan from banks. While these might have a lower rate to the overall transaction, they come with much more stringent credit criteria – heavy emphasis is placed on your firm's balance sheet and income statement. Leasing, in general, places a larger emphasis on the expected value of the asset during the term and at the end of the lease.

 

 

Financing Additional Costs and Leveraging Existing Assets 

Many customers don’t realize that some of the additional costs related to the acquisition of used and/or new construction manufacturing equipment can also be financed via leasing companies – these include maintenance, installation, shipment, etc. That’s a massive cash flow and working capital benefit.

 

  

Sale Leasebacks   

 

In some instances, your firm might already own such assets, and you might want to consider leveraging them through a sale-leaseback for additional cash flow and working capital. That is an excellent financing strategy that many firms have taken advantage of over the last year, as cash flow and working capital availability tightened significantly during the global credit crisis of 2008 and 2009 during the COVID-19 pandemic of 2019. Owners adopted a strategy of leveraging their asset equity to stay liquid and competitive.

 

 Lease Financing as a Cash Flow Strategy 

Many financial managers view lease financing of such assets as a solid cash flow strategy; you minimize payments and match them to the overall benefits of the equipment you are acquiring.

 

 Conclusion: The Importance of Strategic Lease Financing Planning 

 

Both loans and leases offer distinct advantages and financial flexibility when it comes to financing equipment.

With loans, you're actively building equity with each payment, and by the end of the repayment period, you own the equipment outright. This mode of financing also allows for the depreciation of the asset for tax purposes, and the equipment stands as an asset on your balance sheet, enhancing the financial standing of your business. Generally speaking, a high credit score is required for bank loans and term loans for financing assets.

 

Another advantage is that there are no constraints on how much you can use the equipment in terms of hours and wear. Essentially, installment payments mean you're not just paying for usage, but also accumulating ownership.

 

On the other hand, leasing is particularly beneficial for businesses looking to reduce initial costs. Typically, lease payments under a lease contract are lower than loan installments, making it a cost-effective short-term option.

 

Instead of tying up equity in machinery, businesses can allocate their funds to other operational areas. The essence of leasing is that you're paying for the use of the equipment, and once the lease term concludes, you have the flexibility to either return the equipment or buy it. This flexibility extends to replacing machinery, as you can easily return and upgrade to newer models at the end of a lease, ensuring your business always has access to the latest equipment without the hassles of ownership.

 

 Heavy Machinery Financing And Leasing - Loans Canada 

 

 

Call 7 Park Avenue Financial,  a trusted credible and experienced business financing advisor. Focus on which benefits of lease financing are most important to your firm. Structure and acquisition that makes sense from a cash flow, rate, and term structure based on the asset's value and your current financial condition. That is solid business planning for growth.

 

  

FAQ:  

 

What is construction equipment financing?

Construction equipment financing refers to the various financial products and services that allow businesses to acquire construction machinery and equipment loan options for their job site without paying the full amount upfront. Instead, they can lease or finance the equipment, paying for it over a set period, often with interest. Often 100% financing is available on most equipment and heavy machinery, so no large down payment is required for the right equipment selected by the borrower.

How does leasing construction equipment differ from purchasing it outright?

Leasing construction equipment allows businesses to use the machinery for a specified period without owning it. At the end of the lease term, they can choose to return the equipment, purchase it, or renew the lease. Purchasing equipment outright means the business owns the asset immediately, bearing all the ownership responsibilities. Leasing for construction companies can offer more flexibility and might be more cost-effective in the short term, especially for equipment that quickly depreciates or becomes obsolete via tailored loan payments/lease payments.

What factors should businesses consider when leasing and buying construction equipment?
 

Businesses should consider several factors, including the equipment's expected lifespan and technological relevance, their current cash flow, the tax implications of leasing versus buying, the total cost of ownership (including maintenance and potential resale value), and their long-term equipment needs. Additionally, the flexibility of updating equipment and the potential impact on their balance sheet might influence the decision.

Are there any additional costs besides the equipment's price in construction equipment financing?

Yes, depending on the financing or leasing agreement terms, there can be additional costs in heavy equipment leasing - Along with interest rates on financed amounts, service and maintenance fees, insurance costs, and potential penalties for early lease termination or missed payments. Some agreements might also include provisions for additional expenses related to equipment delivery, installation, and training.

Can businesses finance used construction equipment, or is it limited to new equipment?

Businesses can typically finance both new and used construction equipment via a heavy equipment loan or lease in the construction and manufacturing industries. Private sales are not allowed, so financing is limited to dealers . The terms, interest rates, and duration might vary based on the age and condition of the used equipment. Financing used equipment can be a cost-effective solution for businesses that do not require the latest models or for those looking to maximize their budget. However, ensuring that any used equipment is in good working condition and meets the business's needs is essential to borrow money for used equipment.

 

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Leasing Construction Equipment : New & Used !

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Wouldn't It Be A Good Idea To Acquire Construction Equipment Assets The Right Way ? !

Information on the benefits and the mechanics of leasing construction equipment in Canada. This is a cost effect manner of acquiring assets you need to run and grow your business

Leasing construction equipment , both new and used, is a huge part of Canada’s equipment financing industry. The fact that used equipment can be financed at satisfactory rates terms and structures is sometimes news to Canadian business owners and financial managers.

The reality is that this type of financing is a somewhat specialized area of finance and we urge clients to seek a trusted, credible and experienced lease and financing consultant or advisor in this area of Canadian business financing.

Used equipment, particularly in the construction industry, (but in reality a variety of other industries) is financed to the tune of hundreds of millions of dollars annually.

The equipment plays itself out in a variety of different ways – Companies grow, the acquire other firms, some firms go unfortunately, out of business , yet at the same time the values of equipment hold up significantly due to the quality and nature of the products . Naturally we have just gone through one of the most difficult times in the global economy ever, and , as such , for some of the aforementioned reasons there is a variety of equipment for sale and for re financing .

We would point out to clients that it is very prudent to liken the acquisition of used construction and heavy equipment to renewing your mortgage. By knowing you are pre approved at certain rates and structures gives you significant purchase leverage when negotiating a final price. Even though some industries and sectors, geographic and otherwise are in a slump there is still a deal to be made on a variety of heavy equipment.

When you are acquiring used equipment, construction or otherwise, you should be looking for the same type of leases that you would entertain for other business equipment financing. You have, as always, two options – lease to own, known as a capital lease, or a ‘lease to use’, more commonly known as an operating lease. Given the high dollar values of some of the larger equipment it clearly might make sense to entertain an operating lease if that type of lease can be negotiated satisfactorily. That comes of course with off balance sheet flexibility, and, as importantly, the ability to purchase, upgrade or renew at the end of the lease; and that’s your decision at the time, not the lessors!

Just look at the benefits of such financing. If you can derive both productivity and profits from a piece of used equipment, and get financing in place that is satisfactory in overall pricing, terms and structure you have saved many thousands of dollars in purchase price .

All of the traditional flexibility that is associated with lease financing accrues towards used equipment financing also – they include better cash flow management, the ability to control obsolescence, and the ability to put ‘good debt ‘on your balance sheet – i.e. assets that will be used for production and profits. You should also remember that you can negotiate to include soft costs in your used construction equipment financing – they might include warranty, maintenance, delivery and installation.

Years ago the American firm CIT did a study on why contractors and firms leased equipment – the results were very interesting:

Many firms leased because they saw a limited need for the asset – i.e. not a permanent need

Unexpected need for equipment often came up as a driver in lease financing

Interestingly enough cost was never really the major driver in the lease or purchase decision – as you thought it might be of course

Continually upgrading leases was also cited, given the need to stay current and competitive

So whats our bottom line – simply that you should consider the used equipment construction market for asset acquisition when it makes sense – and by working with an expert lease partner you should be able to maximize the benefits of your acquisition from both a financing and productivity viewpoint . That’s solid Canadian business financing sense!

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

Discover Why Leasing New And Used Construction Equipment Works. Lease Finance Equals Financial Flexibility !

A Solid Financial Strategy For Your Company’s Asset Needs




Certain types of asset classes lend themselves to maximum flexibility and maximum benefits when it comes to lease finance. Leasing new or used construction equipment definitely falls into that category.

The acquisition of these sorts of heavy ' yellow iron ' type assets ebbs and flows with the economy, and the Canadian economy has clearly ' righted' itself after several tough years.

The attractiveness of this type of financing is that it is applicable to all asset types and firms with different levels of credit quality. It's of course all about getting ' approved ' and using those assets to generate revenues and profits.

In many cases firms acquiring such equipment might be in the SME sector, even start ups. Therefore the general credit history of the owners is always on the table as a discussion point.

Lessees of other types of equipment might be surprised that lessees of new and used construction equipment can easily get approved despite a negative credit history.

The reason? Simply that these types of heavy equipment assets generally have a solid resale value, and in many cases hold significant value years later. That certainly isn’t the case in Computer and technology leasing, where assets quickly devalue as technology changes.


Owners of firms in the construction and heavy equipment area quickly recognize that lease finance is simply a very effective use of capital, and that capital translates very quickly into cash flow conservation.


When Canadian business owners and financial managers are looking to acquire, and lease these ' yellow iron' type of assets they need to consider three key factors.

First of all the type of lease they choose is important. It's at this time they need to consider the issue of ownership, i.e. who will own the asset at the end of the lease term. The majority of leasing we see in this area of the economy has the business owners and managers opting for a ' lease to own' type strategy. Title would only revert to the leasing company if your firm was unable to make payments and defaulted.

Understanding the real cost of a lease is critical to equipment finance success. That's our 2nd key point. Knowing the rate, and in particular how it's calculated can make or break some of the financial benefits of your lease transaction. Leasing companies in Canada can employ several ' tricks ' ( maybe we should call them pricing strategies!) to improve their yield, so be cautious of down payments, whether payments are calculated in advance or arrears, and how your purchase option figures into the total pricing.

We maintain there is no real difference, from a financing perspective, if you choose a new or used asset. In some cases your firm simply might have access to a great deal on a used piece of equipment, so financing that ' good deal ' makes even more sense. We do not agree with some that maintain it's difficult to lease used construction equipment. It can easily be done!

Pricing in your transaction will depend on your firms overall credit quality, and the industry in Canada divides itself nicely into different tiers of pricing, credit, and asset quality.

Firms with lower overall credit quality can expect some form of down payment, or perhaps a shortened amortization on the term of the transaction.


When you choose lease finance you are making a trade off between financing costs and conservation of capital. For most businesses in the SME sector conservation of capital becomes priority one and leasing wins that decision.

So there you have it. Whether you are looking for trucks, excavators, bulldozers, all other ' yellow iron ' your asset finance needs can be satisfied.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your new and used construction equipment finance needs.







Stan Prokop - founder of 7 Park Avenue Financial –



http://www.7parkavenuefinancial.com



Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.