In decades past, anyone who wanted to be a success in the construction business needed heavy equipment and a lot of it. Not having the right resources could mean missing out on a lucrative contract. On the other hand, having equipment that was used once or twice a year also created unnecessary expense for the business.
That’s where the idea of equipment leasing has taken hold and started to make things easier for everybody.
Offering Rarely Used Equipment for Lease
Owning heavy equipment is great, especially when it is in use. When machinery stands idle for months on end, it drains the net profits of the business. Turning the drain into profit was what McGuire & Hester, a contractor based in Oakland, California, had in mind when the business started to offer its idle equipment for lease. After signing up with a website called the Yard Club, M&H was able to make around $100,000 USD on rentals during the first year of the effort
It isn’t just about the money. Equipment that stands idle has to be maintained. That means diverting resources for the care and feeding of an asset that is producing no returns. Since leasing agreements do come with start and end dates, M&H always knew when the equipment would be free again. If it was needed for a job due to start in the next few months, great. In the interim, the equipment was still earning cold hard cash for the business.
Leasing Equipment
For construction professionals who need equipment but only for a short time, leasing helps keep the overhead down. It’s easy enough to include the cost of equipment rental or leasing in the bids for different jobs. In the meantime, there are no expenses related to storage and upkeep. The business also doesn’t have to pay taxes related to the ownership of the equipment, something that saves more money.
Another reason more contractors are leasing is due to the changing governmental standards heavy equipment must meet. T4 emissions are one of the more important issues to address. Specifically, compliance means more comprehensive maintenance and upkeep without any guarantees of projects to offset those additional costs. By leasing instead of buying, the owner has to deal with the headaches of compliance. All the client has to do is ask for equipment that is certified as being up to current standards.
Bringing Owners and the Lessee Together
The right lease arrangement does mean equipment owners and potential renters have to find one another. Sites that effectively create platforms for lessees and lessors to come together make it all the easier to come up with the right fit. That makes the need for a broker like Yard Club very real.
Yard Club founder Colin Evran has noted that “If you own equipment, it requires large up front investments with no guarantee you’ll use it every day.” The other side of the coin is that connecting owners and lessees saves those parties money while also making a nice chunk of change for the broker. When everyone is making money, who can complain?
In 2013, an estimated 40 percent of construction equipment was rented rather than owned. Based on projections that take into account past trends, that figure will continue to rise each year for some time. Once a contractor begins to understand just what leasing can do to save the business money, time, and bring projects in below or at cost, the idea of owning a huge fleet of rarely used equipment will hold no appeal at all.
The battle cry today is lease when you can, buy when you must. Expect equipment leasing to become easier and more common as construction professionals seek to find more ways to trim the bottom line and still do right by their clients.
Information sourced from CNBC, For Construction Pros, and GE Capital
