State of the Market: Financing Heavy Equipment

A construction company is only as good as its equipment, but building a high-quality fleet is costly. Now that the height of the pandemic is over and the economy stabilizes, more construction companies are planning for expansion and wondering what the best way to grow their fleet is.

The heavy equipment industry is set for dramatic growth as a result of recent economic developments, and demand for heavy equipment in the construction industry will continue to skyrocket. There is a push for improvement on bridges, roads, and other infrastructure across the United States, which will greatly benefit the heavy construction and finance heavy equipment leasing industry.

The construction industry’s trajectory toward success is closely tethered to the quality and accessibility of its equipment. With the pandemic’s peak behind us and a stabilizing economy, construction firms are eyeing expansion strategies, delving into the most effective means to fortify their equipment fleet.

The COVID-19 pandemic significantly impacted the construction industry, causing disruptions in supply chains, project delays, and financial uncertainties. However, as the situation improves and the economy steadies, construction companies are regaining momentum, aiming for growth and seeking ways to bolster their fleets. This resurgence aligns with a broader economic trend, as various industries are witnessing a gradual return to pre-pandemic levels, inspiring confidence in expansion plans.

Heavy equipment industry leaders include infrastructure, construction, mining, oil and gas, and manufacturing. With so many companies chomping at the bit to get their hands on new equipment, the potential for higher prices, product shortages, and more heavy equipment leasing competition also skyrockets. Securing your new equipment is a task that should be top of mind for heavy equipment lenders as we enter this new economic stage.

Financing Heavy Construction Equipment vs. Buying Outright

As of 2020, construction and equipment loans accounted for 13.6% of equipment financing new business volume, according to the Equipment Leasing and Finance Association (ELFA). Construction equipment was also listed as the third most frequently financed equipment. Among those surveyed for commercial fleet financing, 24% chose to lease, 16% used lines of credit, 12% selected secured loans, and 3% used an alternative financing method.

Many companies are wondering whether they should finance their heavy equipment or choose to buy it outright.

It's no secret that heavy equipment is a large but necessary expense. Your business cannot exist without your equipment, so keeping room in your budget for new heavy new or used equipment loans is crucial to long-term success.

Whether you need a new bulldozer, grader, or backhoe, you'll need to assess your budget to determine the best way to make your purchase.

Even if you have the spare cash on hand to buy a machine outright, it may not be the wisest decision. That extra cash could serve as a buffer during a particularly slow month or quarter. It could also help in hiring new staff as you experience rapid periods of growth or invest in other business-related materials. Using most or all of your available cash to purchase a machine outright could put you in a tight position down the road.

If a new piece of equipment costs you all of your working capital, consider financing instead. This financing agreement allows you to make payments each month, rather than to pay one lump sum all at once, and the interest rate also helps keep your finances more flexible.

Financing also provides an opportunity to acquire multiple pieces of equipment at the same time. If you need several pieces of equipment but only have the available funds to purchase one, opting to finance equipment will put you in a much better operational position. Rather than parting with a lump sum of cash, you'll want to assess your budget to ensure that you can handle multiple monthly payments for the length of your contract. If you are comfortable with the amount of cash you have on hand and are financing construction equipment loan rather than buying outright, you can consider securing a few long-term leases to pay for your new equipment.

By financing heavy equipment, you can take what would otherwise be a major expense and cut it down into more comfortable, bite-sized pieces. Then you can pay monthly rather than all at once. Most finance companies offer various leasing and loan amounts repayment terms and financing options, so you can rest assured that you will find one that's right for your business.

The Landscape of Growth in Heavy Equipment

The heavy equipment sector is poised for robust growth, driven by recent economic shifts and an upsurge in demand for heavy machinery within the construction domain. The nation's concentrated efforts toward infrastructure enhancement, encompassing bridges, roads, and diverse development finance construction projects, augur well for the heavy equipment industry.

Amid this surge in demand, the heavy construction equipment market anticipates a remarkable leap from $176.2 billion to $273.5 billion by 2030. This projection signifies an imminent wave of equipment acquisitions among construction companies nationwide, poised to enhance their operational capacities and capabilities.

Several factors contribute to this expected expansion. Infrastructure development projects have gained significant traction, backed by government investments and initiatives. The focus on modernizing existing infrastructure and building new facilities to meet growing demands amplifies the need for heavy equipment across the construction sector. This includes road construction, bridge refurbishments, and other vital infrastructure projects, all driving the demand for heavy machinery and equipment.

Financial Strategies in Heavy Equipment Procurement

The robust market forecasts propel construction companies to reevaluate their equipment procurement strategies. Investing in heavy machinery is undeniably a significant financial commitment, but it is indispensable for business operations. Understanding the financial landscape and navigating through strategic procurement decisions is crucial to ensure long-term success.

Given the financial implications of acquiring heavy equipment, many companies are carefully considering the choice between Financing Heavy Construction Equipment and Buying Outright. The Equipment Leasing and Finance Association (ELFA) data revealed that construction and equipment finance constituted 13.6% of new business volume in equipment financing in 2020, ranking lease construction equipment as the third most frequently financed equipment type.

Navigating the Choice: Financing or Outright Purchase

Choosing between heavy equipment financing companies and outright purchase involves a comprehensive assessment of financial strategies. Heavy equipment financing, while a necessary expense, requires a prudent budgetary allocation to ensure sustained success. Even if companies possess the financial capability to purchase equipment outright with available cash reserves, a judicious approach advises against exhausting these resources.

Retaining surplus and cash flow can serve as a safety net for financing companies during uncertain periods or facilitate growth through staff expansion and strategic investments. Committing the bulk of available capital to a single equipment purchase could potentially limit financial flexibility, hindering a company’s ability to adapt to changing market conditions.

Benefits of Financing for Long-term Success

Opting for financing over outright purchase presents numerous benefits. It allows for manageable monthly payments instead of a singular lump sum, with interest rates and ensuring greater financial agility. Additionally, financing provides the opportunity to acquire multiple pieces of equipment simultaneously without exhausting available funds. This strategic approach optimizes operational capabilities without severely impacting the company’s cash reserves.

Optimizing Operational Capabilities through Financing

Financing heavy equipment transforms what might initially appear as a monumental expense into manageable, incremental payments. The diverse array of heavy equipment loans, loan, leasing and financing options offered by financial institutions ensures tailored solutions for various business needs. This flexibility permits companies to adapt to their financial preferences and capabilities, selecting the financing option that best aligns with their long-term goals and financial stability.

Strategic Financing for Sustainable Growth

The strategic approach to financing and heavy equipment financing loans equips construction companies with the flexibility to manage their expenses more effectively. This approach supports ongoing business growth, ensuring that companies have the necessary tools to navigate market fluctuations and changing customer demands.

Preserving Cash Reserves for Long-Term Resilience

Heavy equipment remains the cornerstone of a construction business, serving as the means to deliver quality services and generate revenue. However, meticulous financial planning through exploring all financing and leasing options ensures the preservation of cash reserves, mitigating future financial risks of working capital loans and ensuring business resilience.

Guiding Success through Strategic Financing

By leveraging strategic financing and meticulous financial planning, construction companies can navigate the evolving market landscape, ensuring sustainable growth and enduring success. Engaging a financial institution in strategic financing not only aids in immediate equipment acquisitions but also lays a solid foundation for future financial stability and business growth down payment front.

Ensuring Adaptable and Sustainable Business Practices

Amid the evolving market, construction businesses must remain adaptable to changing conditions. Construction companies need to consider the long-term impact of their financial decisions. Opting for financing over outright purchase allows for a more fluid financial structure, enabling companies to respond promptly to market changes and invest in business expansion as opportunities arise.

Here's a table summarizing the state of the market for financing heavy equipment:

This table provides an overview of the current state of the market for financing heavy equipment, highlighting key aspects such as economic impact, market growth projection, financing trends, and the benefits of financing over outright purchase. It emphasizes the importance of strategic decision-making and financial planning for long-term resilience and success in the construction industry.

Wrapping Up

The strategic insights for financing heavy construction equipment highlight the importance of comprehensive financial planning and strategic decision-making. The construction industry's growth and success heavily rely on the prudent allocation of resources and a keen understanding of the financial implications associated with acquiring heavy construction equipment financing together. As companies navigate this post-pandemic phase and plan for expansion, leveraging strategic financing options becomes a critical component in the application process of ensuring sustainable growth and long-term success.