In a tough economy and without a backlog of work lined up, spending $50,000 on an excavator can be a big expense to justify. Many small to medium business owners don’t have enough cash to buy expensive construction equipment outright.
There are usually two choices on offer: buy the equipment (typically with finance), or you can hire the equipment.
The question is, which option—buy or hire—is best for your finances and operations?
AMOUNT OF USE
Choosing the right answer for your business often boils down to how long or often you intend to use the piece of construction equipment (and will vary from asset to asset).
The general consensus is that if you need to perform a specialist, one-off job outside of your normal scope of work, or to boost capacity during a busy period, then you should likely hire it.
However, when you have everyday equipment like a skid steer and/or excavator at your disposal, more work opportunities arise that you can take advantage of/profit from. This means you’re front of mind when businesses are looking
to contract out work, or you can start contracts much quicker than you would previously if you had to source and acquire the equipment first.
Furthermore, if you anticipate using the equipment regularly and for a long time, owning it will be cheaper in the long run. For example, if you’re working on a long- term project or you’ve got several jobs on the horizon.
THE QUESTION, WHICH OPTION IS BEST FOR YOUR BUSINESS?
AVAILABILITY OF FINANCE
Perhaps you’ve already decided it would be smarter to buy the construction equipment—but cannot get finance from traditional lenders. Many traditional lenders only look at a company after they have been in business two years and often will only consider brand new equipment.
Or maybe you can get finance but—in an uncertain economic climate and without a backlog of work—don’t want to get locked into a long-term chattel mortgage or finance lease.
Hiring, you might be thinking, is your best or only option, at least for the foreseeable future.
Cost and flexibility comparison of equipment sourcing options*
- Finance Lease
- High Cost
- Chattel Mortgage
- Low Cost
* This is a general guide only; for expert advice on the best finance option for you, speak to your accountant or finance broker.
You have another choice: With our rent-to-own funding solution (called Rent.Grow.Own—see below).
Auto Link Finance offers a 12-month agreement with greater flexibility than traditional funding options like a bank loan or finance lease. Unlike hiring, it enables you to buy the construction equipment when you’re ready.
The question is: How do the costs of rent-to-own and hire of construction equipment compare? We looked at the costs of hiring and renting-to-own some common types of construction equipment (see ‘Cost comparison’ on this page further down).
AUTO LINK FINANCE - THE FLEXIBLE CHOICE
Auto Link Finance finances construction equipment for start-ups and established businesses. We fund new and used equipment—regardless of its age, mileage or hours of use.
If you purchase the equipment within the first 12 months, we’ll take 75% of the net rent you’ve paid off the purchase price. At any point in the contract you can purchase the equipment and take advantage of a generous rental rebate. Your rent money is NOT dead money!
At the end of your 12 month agreement, you can:
- Continue renting. You’ll still have the option to purchase the equipment and receive a generous rental rebate or return it to us without penalty;
- Return the asset to Us with no penalties or further obligation. This is perfect if you decide the equipment is no longer suitable or your business hasn’t worked out as planned;
- Switch to an ownership model. Continue to build equity in the asset with each payment and enjoy a 30% discount. At the end of the agreement, you can purchase the equipment for a nominal figure.
Although the terms ‘rent’ and ‘hire’ are sometimes used interchangeably, it’s important to distinguish how Auto Link Finance Solution differs from traditional rental.
- RENT-TO-OWN: Auto Link Finance buys the equipment on your behalf and rents it to you. You make regular rental payments and have a number of options, including purchasing or returning the equipment (see box).
- HIRE: The equipment hire company owns the equipment and you hire it from them for it for as little as an hour or as much as several months. When you have finished using it, you return it.
The similarities between renting-to-own and hiring include:
NO OR MINIMAL CAPITAL OUTLAY: Neither renting-to-own nor hiring requires a large capital outlay, helping you preserve your cash flow—the single most important factor to your business’s survival.
TAX DEDUCTIONS: Rental payments and hire fees are operating expenses, which are 100% tax deductible.
‘OFF BALANCE SHEET’: Rental payments and hire fees do not appear as a liability, or debt, on your balance sheet. In other words, your ability to borrow more money is unaffected.
QUICK AND EASY APPLICATION: Depending on availability, you can get your hands on hire equipment within 24 hours. Similarly, a rent-to-own agreement can be processed within a day and the equipment delivered within a week.
TRY BEFORE YOU BUY: Hiring allows you to try equipment before deciding whether to buy it. Auto Link Finance's Rent.Grow.Own funding solution allows you to try equipment and, if it’s not entirely suitable, to return it to us after 12 months without penalties.
ADVANTAGES — RENT-TO-OWN
The main advantages of renting-to-own construction equipment are:
OWNERSHIP: As the name suggests, renting-to-own creates a pathway to ownership if you decide you want to own the equipment. With each affordable payment you’re building equity in the asset, which you can use to finance the expansion of your business. If you decide to sell the equipment, you’ll get a return on your investment.
AVAILABLE 24/7: Equipment you own is available to you all the time. This allows you to take on jobs at a moment’s notice; you are in control. There’s no guarantee with hire equipment as the machine you need may not be available when you need it.
DOWNTIME: The cost of idle time caused by bad weather or a project falling behind schedule will generally be lower for owned equipment than hired. Also, when you own the equipment, you can react faster to unexpected changes in projects.
BUDGETING: As your rental agreement is a fixed contract with set weekly payments, the expense is more predictable than ad hoc hire fees and can thus be more easily budgeted for, giving you better control over your cash flow.
ADVANTAGES — HIRING
The main advantages of hiring construction equipment are:
SPECIALIST EQUIPMENT: Hire firms carry specialist equipment that by its nature is rarely used and is thus not normally part of a contracting company’s inventory. Hiring this equipment is much more cost-effective than owning it.
CONVENIENCE: You don’t have to worry about the problems of registration, depreciation, storage, repairs and maintenance. The hire company takes care of all that.
FLEXIBILITY: You use hire equipment only when you need it. For example, you can hire extra equipment for an isolated project or during busy periods—and hand it back when the project finishes or there is a downturn in business.