Equipment Financing Options

By Angie Harms

When purchasing a new piece of equipment, the process to determine the right type of financing can seem complicated and confusing. With so many options available, how do you figure out which one is right for your facility? It is important for decision-makers to understand there is not a one-size-fits-all solution. Whether you are looking to pay upfront or pay over time, every option has important details to consider. To help navigate through all of the options, do your research, determine the needs of your organization, and talk to your local dealer to find the right solution.

Explore your options

As a first step, you should educate yourself on different financing options. Each option has its own benefits and can assist with different aspects of your business.

If your end goal is to own the machine, a traditional loan can be a great option. Similar to a loan for a car, the purchaser makes monthly, semi-annual, or annual payments on a piece of equipment over a 12- to 72-month period. This type of loan typically requires a down payment and higher monthly payments compared to other financing options. Additionally, because the equipment is owned by the business, the machine takes up capital, which might not be ideal. To determine if a loan is right for your operation, consider how long you will want to keep the piece of equipment and if capital is a concern.

Another option is an equipment lease, which offers more variety and flexibility. There are a few leasing options: operating lease, lease purchase (dollar buyout lease) and municipal lease. Each of these options offers different advantages for sports field professionals based on their needs.

An operating lease is ideal for customers that do not want to own the machine at the end of the lease term. The operating lease will allow you to replace equipment every 3 to 5 years. The key advantages of an operating lease are lower monthly payments and upfront costs making it cash flow efficient. Additionally, because the lease term may be shorter, the equipment is more often under warranty, which keeps maintenance costs down. 

This type of lease usually restricts the number of hours that the equipment can be used, and equipment must be properly maintained to meet the equipment condition terms at the end of the lease. An operating lease is ideal for a machine that will be used daily, particularly if you know about how many hours you will use the machine each year. This type of lease also allows you to take advantage of the latest in technological updates in equipment at each replacement, which may result in cost or labor savings.

Similar to a loan, a lease purchase is ideal for customers who would like to own the equipment at the end of the lease term. Some also refer to this as $1 buyout lease as the purchase option at lease maturity is $1.00. While it may seem like a steal, the fixed monthly payment is often higher than an operating lease. Typically, dollar buyout leases are used for a piece of equipment that will be kept for a long period of time.

The municipal lease is for a select group of customers: state, county, city, and municipal governments and their agencies, including school districts, community colleges, and state universities. Not all qualify for a tax-exempt municipal lease, so it is best to check with accounting to see if you qualify. A municipal lease is similar in nature to lease purchase, as it results in ownership of the equipment.

Other options include an outright purchase or rental. While these options are not cash flow efficient compared to the other financing solutions, there are some instances where one of these options may work well. For example, you may choose to outright purchase handheld equipment, since it will likely be used more often, is less expensive and won’t take up a lot of capital. On the other of end of the spectrum, you would choose to rent if you needed equipment for a one-time project. Most frequently rentals are used for small construction equipment such as skid steer loaders or compact excavators.

Create a plan

Once you have completed initial research on the options available, it is time to go and get your new machines. It is important to work with your dealer to help determine the best solution for your business. When you go to the dealer, you should be prepared with an equipment replacement plan, which your dealer can help you create. The equipment replacement plan will not only implement a set schedule that you can easily follow, but can also save money in the long run.

An equipment replacement plan begins with identifying the equipment you need in your fleet and setting goals for each. Working with a dealer, you will set ideal life cycle timeframes for each piece of equipment, along with estimated usage. This plan will help to map out how you use your equipment and how often you want to replace it, which will then lead to the financing option that is best for that machine.

When speaking with your dealer, also consider other things that can be wrapped into a financing package, such as maintenance or parts. Some financing companies, such as John Deere Financial, can include maintenance and parts in the monthly leasing bill, which will help control costs.

Use your resources

Once you determine the right machine and how you would like to purchase it, it is time to select your lender. Whether it is a third-party institution, or one that’s tied to your manufacturer, do your research to ensure that company is right for your business. You may also want to reach out to your peers, ask questions and learn about their lender experiences for some additional perspective.

After selecting a lender, tell them about your business needs. Often financial institutions can create a customized package based on your needs. For example, some lenders offer payment

plans that align with a specific schedule, which is ideal for schools or government operations. Your financing company of choice will request a credit application and financial information, and check your business credit to ensure you qualify for financing.

When financing a new piece of equipment, it can feel overwhelming when sifting through the many options and finding the right financing solution for your business. From loans to leasing, it is important to lean on your dealer and understand that you are not alone in this process. Consider how you can make a financing deal work for your operation, from wrapping in maintenance and adding attachments to creating a payment program that aligns with your revenues.

Angie Harms is tactical marketing planner at John Deere Financial.