When it comes to acquiring heavy equipment for your commercial construction company, there are several factors to consider: primarily whether to rent, buy or to RPO (rental with purchase option). It’s important to understand the benefits and drawbacks of each option, so you can make the right choice for your business needs. In this blog we’ll cover the basics of purchasing and finance options to help you make an informed decision.
Renting construction equipment offers the greatest amount of flexibility. Most rental companies offer daily, weekly, and monthly rates so you won’t have to pay for equipment that you won’t actively be using. It also helps cut down on costly maintenance, upkeep, and repairs.
Rental companies generally have a wide selection of sizes and attachments to choose from, which allows you to get the right machine and configuration for the job you need.
The downside of renting is the uncertainty of availability. Rates will vary from company to company depending on the amount of time you plan on using the equipment, and the hour/usage limitations. But with every rental company, the amount of equipment is finite. It’s important to call around to ensure availability and ensure that you are getting the best price. You also need to ensure that the company you are renting from is reputable, and that they keep their equipment maintained as well as provide emergency repairs should the machine break down. You should plan ahead to ensure that the rental company has the equipment and attachments available is vital to avoid downtime.
Owning your construction equipment means that you get to determine how and when the equipment is used. You also have complete control over its maintenance and upkeep. You can also purchase quality used machines from reputable dealers, which helps lower the initial purchasing cost. Owning equipment means you always have it when you need it, and it allows your equipment operators to have a higher level of familiarity with operating the machinery, leading to higher productivity.
Purchasing equipment can be costly if you decide to buy new, and can tie up lines of credit. When buying equipment you also need to consider the resale value, trade-in value, and the relationship between initial costs, time, expected usage, and the resale. Other costs to consider include maintenance, repairs, transportation of equipment to the jobsite, and storage. Proper fleet maintenance is one of the most important aspects of increasing the longevity, efficiency, and resale value of your equipment. If your company is unable to keep equipment properly maintained and serviced, then you should probably consider renting.
Leasing combines some aspects of renting and buying. We work with a variety of leasing and financing companies that can come up with a plan that will work for you. Leasing involves less cost upfront since you typically don’t have to make a down payment. It also frees up capital and doesn’t tie up credit lines. Depending on the finance company, leases may also come with benefits such as offering flexible terms or seasonal payments which allow lower principal payments during slower months.
Leases tend to have higher interest rates and higher insurance rates compared to purchasing equipment outright and there are huge penalties assessed if you break your lease early. This means you must pay the entire lease term regardless of whether or not you are still using the equipment. Some leases also include large penalties for damage and wear and tear on the equipment, so you have to factor in maintenance and repair costs into leasing the equipment. This can greatly affect your downtime.
Rental Purchase Options (RPO)
While XCMG doesn’t currently have an in-house financing branch, at JAPA we offer something called a Rental Purchase Option for our equipment. In a lot of ways, RPOs combine the best of everything we detailed above.
For new equipment JAPA offers 6-month RPOs, where 100% of the rental rate is applied to the purchase cost of the machine. In that period, you get to try the machine out, and aren’t responsible for repairs, beyond general daily & hour-based maintenance. You are also able to write-off your rental costs in Canada. At the end of 6 months, you can decide if that machine is right for you. If so, you convert the RPO, with a significant down payment from the paid rentals. If not, you return the machine without purchase. There is also 0% interest over that time.
For used equipment, JAPA offers up to 4-month RPOs, with all the other same benefits.
Which is the Best Option?
Depending on the size and scope of your construction company, choosing just one option may not meet all of your equipment needs. You’ll probably have some core equipment that you own that you are capable of maintaining and servicing and leasing others. When leasing is not available or affordable, you may rent equipment to perform specific tasks or during peak times for your business in order to supplement the equipment you already have. For these reasons, renting is usually the ideal choice when it comes to investing in equipment for jobs.
Regardless of what options you choose, be sure to consider all factors to make an informed decision on what best meets your company's needs.
JAPA Rents Out Quality Construction Equipment
For 50 years JAPA’s rental department has been quickly providing quotes for rental rates that help our clients decide what construction equipment is best suited for their jobs. Our company is proud to be a distributor of XCMG, known for its high quality and durability whether you are looking to rent new models or previously used. Whether you’re looking for lifting equipment, an excavator, a soil compactor, asphalt roller or wheel loaders - we have a machine that will run for you. When it doesn’t, don’t worry: our technicians are here to help minimize your downtime and get you up and running again.