Deciding how you’re going to go about handling dozer financing is an important part of your financial decision making process for a construction company of any size. It doesn’t matter if you’re a small fledgling company trying to get your start or a larger business that has been in your market for years.
One of the questions that a decision maker for equipment or purchases has within a construction company is deciding whether or not to get a loan or a lease for your dozer. Dozer financing is a great tool to be used by construction companies of all sizes, but the type of dozer financing you utilize is important.
The first thing to get out of the way is that there is not a right or wrong answer when it comes to which dozer financing option to choose. There are pros and cons to each, and there are countless variables that will determine which type of dozer financing you “should” get.
At the end of the day, it really comes down to how well you know your business, the needs of your customers, and where you see your business going in the next 1 to 5 years.
First, let’s explore the two common types of dozer financing: getting a loan and getting a dozer lease.
Getting a Loan for a Dozer Purchase
Getting a loan for a dozer is comparable to getting a loan for a vehicle or other type of heavy equipment, when it comes to functionality. While the financial specifics of those types of financing may differ, the general idea of getting a loan for a dozer is that you’re taking immediate ownership for the dozer and paying off the cost over a number of years.
This has some advantages as well as some disadvantages, and it all comes down to how you run your business and where you want to take it.
Benefits of Getting a Loan
Using a loan for your dozer financing is about the equivalent of buying the bulldozer outright. You’ll have the opportunity to use the dozer as an owned piece of heavy equipment, even if you have not technically “paid for it in full,” yet.
With the loan, you’ll be able to distribute the overall cost of the dozer purchase, even though you’re using it as an owned piece of equipment, across a set of months or years, depending on how your loan is structured.
With a dozer loan business owners own the equipment, not the bank. Dozer equipment financing enables business owners too utilize Section 179 tax code where construction companies can accelerate depreciation and write off the entire purchase price in year 1 off their taxable income, or they can depreciate the asset over its useful life and take a small tax break each year.
Disadvantages to Getting a Loan for a bulldozer
The disadvantages you’ll find with using a loan for your dozer will depend on your business. Not all benefits and disadvantages will apply.
One of the major disadvantages that construction companies find with trying to get a loan for their dozer financing is that loans are generally harder to acquire. Compared to getting a lease or trying to rent the dozer, getting a loan typically needs much higher financial requirements to be met before a bank is going to offer a loan.
The other characteristic of the loan is that you technically own the dozer. So even if you find that the piece of equipment you purchased is not something you want, you’ll either have to settle with it or have to deal with having to sell it. Compared to the alternative to lease a dozer, this option is less flexible.
Getting a Dozer Lease
The great thing about getting a lease as your form of dozer financing is that you’ll have slightly better flexibility on how you structure the deal. Compared to getting a loan, a dozer lease has different outcomes based on what you want to achieve through the lease.
Benefits of leasing a bulldozer
Similar to getting a loan, a lease for your dozer allows you to use the dozer immediately. While you won’t technically “own” the dozer, you’ll be able to utilize it as if it was a part of your business’ tools and assets.
Because of how leases can be structured, there’s greater flexibility in the outcome of your lease. Are you interested in keeping the dozer at the end or do you want to move on to a different dozer? With a lease, you can structure it so that you “purchase” the dozer at the end or simply let it go when the lease is up.
This will give you the option to select a different dozer if you need to upgrade or getting a different piece of heavy equipment based on what your company needs to accomplish.
With a dozer lease business owners can write off 100% of their monthly payments off their taxable income each year. This will give you the biggest tax write off year after year as long as you're leasing a dozer. At the end of the term you can renew the dozer lease, negotiate a final cash payment with the lessor or return the equipment and upgrade to the latest and greatest dozer.
Disadvantages of Getting a Lease
The major disadvantage of getting a lease is that it can sometimes end up costing you more than other dozer financing options. While this isn’t true in all cases, you want to make sure that you’re shopping around to understand the price ranges of the different forms of dozer financing in your area and market.
Which Is the Best Option?
Before you make the decision on which dozer financing to get, make sure that you’re taking the time to understand your business financials in and out. It can help to figure out or plan where your business is going to go in the next 3 to 5 years, as this will help you decide on whether or not your new dozer is going to be a permanent addition to your fleet or simply a temporary tool that you replace or get rid of by the end.
Some businesses may not be able to afford larger down payments for “cheaper” dozer financing options, but know that making a profit regardless will make the option worthwhile.
On the other hand, some businesses want to avoid as many unnecessary costs as possible, so choosing a more financially secure dozer financing option may make more sense for them.
Make sure to shop around and find the price ranges for various dozer financing options available in your area. In the end it really comes down to how you want to handle ownership of the dozer by the end of your payment term.
Call Trust Capital today to discuss whether you should get a lease or a loan for a dozer.