At the same time, with manufacturers wanting to sell their products, there are also manufacturer-sponsored
programs that are offering some really attractive finance and lease options out there as well. It’s a good time to do all.
— John Crum, senior vice president of Wells Fargo Equipment Finance’s construction division
You, too, have choices. And while different companies and different manufacturers may offer similar wares, they are not by any means all alike, which means you need to ask a lot of questions. Assuming one manufacturer or bank offers a carbon copy of their competitors’ bill of fare is a mistake that could leave you unaware of a option that fits you better.
As vice president for U.S. construction financial services for one of those major equipment manufacturers referred to earlier, Mike Rankin can lay out a number of options. “Volvo Financial Services offers a full spectrum of finance and lease offerings, including flexible loans that can be customized to customer business needs and resources, special program offers and competitive rates,” says Rankin, citing such options as accelerated payments, skip or seasonal payments, balloon payments and simple interest loans. “Unlike some lenders, Volvo Financial Services does not penalize customers for paying off all or a portion of their loan before it’s due. Volvo Financial Services also understands the cyclical nature of the construction industry and will work with customers to design a plan that matches their cash flow, with terms ranging from 24 to 60 months.”
Among the benefits of a loan for the customer, says Rankin, are the actual ownership of the asset, the quick building of equity, and the tax depreciation with no hour limitations or return conditions.
“It’s interesting,” says Komatsu’s Norris, “because leasing gets probably more press, but the cornerstone customer in the U.S. and Canadian market still likes to own their core fleet, and then they’ll add to that core fleet through rental or leasing packages that are available.
“There are benefits to ownership, unless you overdo it. Our friends at the IRS still allow accelerated tax depreciation, so unless you overbuy, or are in a situation where you are being penalized for too much benefit if you will, there are still some advantages to owning that machine,” says Norris. “I think customers like the uncertainty removed from any transaction. If they can get the machine they like and their operators are happy with, they’re familiar with the product line, and they trust and have a good relationship with the distributor, it does make a great deal of sense to buy. And then as you want to add to that fleet, perhaps do it through leasing or in many cases just rental.”
With its Fair Market Value, Fixed Purchase Option, Finance and Options Plus leases, Volvo Financial Services offers leasing products that provide a variety of turn-in options, says Rankin.
The exit window, explains Komatsu’s Norris, is an advantage to leasing for the customer. “With a good track record and credit profile, you can get into the machines for lower up-front costs, perhaps match those machines up with a job or a duration of a job or project, and then when that project is over, you may still choose to purchase the equipment or you may decide, ‘OK, I’ll give it back and look for the next opportunity.’ ”
At Wells Fargo, Crum notes “significant movement” of customers to a third route as they consider how to add equipment. “The activity is much more heavily centered right now than it has been in the past on the rental side of the business,” he says. “Our end-user contractors are telling us that the first move they’re making as they’re getting some more work and looking at their fleets is that they’re going to rent in the second and third quarter this year, and then maybe make the long-term decisions in the fourth quarter. And dealers and manufacturers are also reporting significant increase in demand on the rental side of their business. For the dealers, their rental fleets are having very strong utilization right now, to the point where a number of dealers are looking at adding to their own rental fleet to meet the demand. Ultimately, the hope of the seller of equipment is that they will then convert that rental to a purchase at some time later in the year or next year.”
Again, flexibility is a carrot for end-users. “They can use the equipment for a period of time, and can then decide on what they want to do at some point in the future,” says Crum. “A lot of traditional dealers will allow them to apply some piece of their rental towards a conversion price of the machine, if they choose to do that. I think, just right now, people are at the stage that they want the flexibility that if it doesn’t work out long-term, they can return the equipment really at any point to the traditional renting dealer without any long-term obligations.”