Even if a business has enough cash reserves to fully pay for needed equipment, it’s often a wiser decision to seek financing solutions and dedicate the cash flow to other pressing areas. In 2018, nearly eight out of ten businesses used at least one form of financing (including leases and loans) to acquire software and equipment.
A staggered payment or a lease agreement makes better sense for many businesses, as it gives them greater leeway to manage their financial resources.
The construction industry is no stranger to these financing methods because it relies heavily on large and small equipment. In response to these needs, finance companies make sure that construction companies are spoiled for choice when it comes to financing agreements.
Expenditure of the Construction Industry
The construction industry sees massive spending; the U.S. Census Bureau reports, during the first six months of 2019, construction spending amounted to about $615.8 billion. Even though figures dropped by 0.5 percent compared to the same period in the previous year, it is still a staggering amount.
Many non-residential construction sectors saw an increase in spending from 2018-2019, according to Fails Management Institute.
Public Safety Construction increased by $10 billion (8 percent)
Transportation Construction increased by $55 billion (7 percent)
Lodging Construction increased by $33 billion (6 percent)
Office Construction increased by $79 billion (6 percent)
A huge chunk of this expenditure can be attributed to equipment purchases. According to the Equipment Leasing and Finance Association (ELFA), construction equipment accounts for 13.9 percent of equipment financing in the USA in 2018. This represents an increase from the previous year’s figures (12.7 percent).
Reasons for Financial Solutions
With massive construction spending, companies are turning to financial solutions to maximize their resources and expand their bottom line.
Some of the most powerful reasons to adopt financing are:
Capital Preservation
Investing in large capital expenditures (such as purchasing heavy-duty construction equipment) entails huge financial risks. For smaller companies, this is not a risk worth taking. Financing mitigates this risk; it eases the worry that the new equipment may not yield the desired increase in efficiency and return on investment.
Better Expense Planning
In the face of budget fluctuations, financing evens out expense planning. Paying for a new piece of equipment is a big financial move, which may not be an easy decision for companies with smaller cash reserves. Financing equipment helps maintain cash flow and greater certainty in budgeting by setting customized lease payments to match cash flow.
Managed Obsolescence
Some construction equipment falls into obsolescence quickly, and financing eliminates the risk of owning obsolete equipment. It is a more attractive choice than investing a huge amount of resources on an item that loses its serviceability a few years down the road.
Construction equipment financing plays an integral role in the financial planning of companies, and they have countless choices when seeking funding for their equipment.
Finding Financing Solutions for You
Regents Capital Corporation provides reliable, innovative solutions for construction firms. From loans and leases, we offer financing for different needs. With a combined 100 years of experience and $150 million in finance transactions processed, expect solutions tailored to your business.
We’ll fund your growth, so you can continue building the economy. Talk to our representative today.