Many financial managers consider leasing construction equipment as one of the many ways that they can procure equipment while keeping costs low and off the balance sheet.
Construction equipment leasing is also frequently the quickest and simplest way to respond to urgent construction needs. The reasons for choosing leasing are pretty simple. One of them is that according to the current FASB rules, operating leases can be kept off the balance sheet. Depending on the structure of your lease, you can easily save money by reducing the cost of the equipment. This means that your lease agreement has to be properly structured the first time otherwise, it would be a costly transaction. It is much easier to negotiate a lease before it is signed rather than try to correct it afterwards. Research shows that lessees who sign leases that are not properly structured to cap risks, often pay up to 50% more than they should if they had simply purchased the equipment. With that in mind, how then do you successfully lease construction equipment?
Secret To Successfully Leasing Construction Equipment
Do Not Rely Solely On Equipment Leasing Companies’ Advice
Many business owners have very little knowledge about the in and out of leasing construction equipment so they tend to rely on the only source of knowledge they know which is equipment leasing companies.
Advice from leasing companies can be very helpful but it is hardly solid advice if they do not know the immediate and long term goals of your company. If you do not have an in-house expert in construction equipment then you should seek the services of a professional so that they can cap most if not all the risks in your lease agreement. In short, you should always supplement expert in-house/professional expertise with advice from your equipment lessor.
Carefully Analyze The Risks In Your Lease And Calculate The Cost
All construction equipment leases come with certain risks. These risks include but not limited to:
- Unfavorable end of lease terms
- Unreasonable return conditions
- Provisions that only favor the lessor
- Burdensome notice requirements
- Uncapped interim rent
Once you have identified the risks in your lease, you should calculate the cost of each one of them. This way, you will be able to accurately determine how much your lease would cost and from there, you can compare different quotes from different equipment leasing companies.
Negotiate The Best Terms And Price
The secret to successfully leasing construction equipment is to negotiate the terms and conditions of your lease. There is nothing like a standard lease and all clauses in your lease can be negotiated in order to suit your current business needs. With a true picture of the total costs involved, you will have more leverage in negotiations.
If a lessor seems a little too rigid or is unwilling to negotiate, then you should take your business elsewhere. Lessees who negotiate their leasing contracts usually end up with better deals and manage to lower the cost of the lease over the lease lifecycle.
An in-depth knowledge of the typical language of construction equipment leasing agreements is also necessary. If you are not familiar with the lingo used in construction equipment, then you should have a negotiator who has vast experience in dealing with equipment leasing companies.
Measure Ongoing Lease Performance
To avoid constantly analyzing historical leasing performance to determine the cost of the risk in your lease agreements, make sure that you keep track of your current lease performance. Break it down by category and use this information to guide you in future leasing decisions. Measuring your ongoing lease performance will also help you gain some advantage in negotiations over ongoing contracts.
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Making A Decision
Opting to lease construction equipment rather than purchase it can be a wise decision but only if the hidden costs and risks are controlled. The above tips can make the difference between successfully leasing construction equipment and being a victim of a bad transaction. These are only the basics of successful leasing so it is up to you to do a little more research.
Considering the cost of the consequences involved, why not visit LeaseQ and contact their team of experts? There are no sales representatives who will try to coax you into unfavorable deals plus you can compare and prioritize quotes for free.
For more information on leasing construction equipment, simply CLICK HERE.