Financing equipment: how best do you go about it?

weekly comment by thina bhebhe

Due to the tough times most mines, quarries and their related contractors find themselves operating in, it’s understandable that many have continuously stalled, skipped or postponed their fleet replacement programmes time and again. But, construction and mining equipment cannot be used after a certain time as the cost of maintenance outweighs the cost of investment. Consequently, it can be estimated that the need to replace obsolete or outdated equipment will increase rapidly so as to meet the operational demands of businesses.

But, buying equipment in today’s economic climate has never been a walk in the park. Banks are shying away from financing “yellow” metal equipment needs, and if ever they do, repayment terms are just beyond the reach of many, so we hear. Outright purchasing has over the years been the traditional norm for many yellow metal equipment fleet operators, but there is definitely a trend towards out of the ordinary methods that eliminate the need for large capital outlays.

One of those fast gaining momentum are operating leases, said to offer a better solution that protects both buyers and suppliers. Operating leases mean that the asset is financed off the balance sheet, thus protecting key debt-to-equity ratios while freeing up cash-flow for businesses to focus on their core activities. In this case, the lease is financed by a provider that takes the residual asset risk. This means that neither the customer nor the supplier needs to take the risk. This type of lease also allows companies to claim back the entire lease as an operating expense.

Operating leases also allow for flexibility once the lease concludes. Customers can return the asset, choose to continue leasing it at a reduced rate for a new lease period, or continue leasing it on a casual basis. This makes operating leases ideal where the asset is only needed for a fixed period – such as a two-year project. Companies can also align their procurement with their contracts.

It is advisable for anyone looking to purchase their equipment to do their due diligence before agreeing to any financing terms. How are you financing your equipment? What is your experience with your available option? Give us your feedback on and we will post the best contributions on the website.

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