CONSTRUCTION EQUIPMENT: In the Market for a Mini?

It’s not uncommon for a landscape contractor to be working at a site and look across the street to see his competitor using a compact utility loader to do the same job with fewer employees in less time, says Greg Lawrence, marketing product manager for Toro’s Dingo compact utility loader line, Bloominton, Minn.

That scenario would get any contractor asking questions about the equipment’s capabilities and cost.

Mini skid-steers and compact utility loaders, which originated in Australia in the 1980s, began popping up in the United States during the 1990s. They’ve caught on thanks to versatility across various market segments (construction, landscaping, irrigation and others), a greater presence at rental houses and increased exposure in the field, as illustrated in the scenario above.
 
At surface level, buying a mini skid-steer is like buying a new car. Choose a brand, select the features and decide whether you’re going to lease or own.
 
But because this purchase can affect your bottom line, you probably won’t be as quick to leave the dealership sold on a test drive and free key chain alone.
 
Fortunately, manufacturers and dealers offer a host of financing options for contractors in the market for minis.

COST CONCERNS. Landscape contractor Jon Andre first became interested in compact utility loaders when he saw one at a trade show. After researching the machines for two years, the president and sole employee of Good Earth Landscaping, Tacoma, Wash., finally purchased one in April 2006.
 
“I’m a small company, which is why this is a very attractive piece of equipment for me,” Andre says of his one-man operation that does less than $150,000 in annual revenue. “What I lack in employees, I gain in equipment.”
 
One of Andre’s concerns, and a concern of many contractors, is how quickly they will see a return on investment for theses machines, which range in price from $12,000 to $22,000, according to manufacturers. Standard size skid-steers costs anywhere from $25,000 to $50,000.
 
Andre, who estimates a mini skid-steer replaces as many as three employees when it’s running, expects it will take five years for his machine to pay for itself. Andre uses the machine for very specific tasks, so he thinks other business owners who use their minis more regularly may recover the cost more quickly.
 
Manufacturers say this product line’s broad price range is a result of the various options these machines present, namely track or tires, engine type (gas or diesel) and attachment selection. The size of the model also comes into play.

Tracked machines are more expensive than their counterparts on wheels. They’re also more popular for landscaping because of superior weight distribution, which is important for driving on turf and soggy areas.
 
Like with trucks, the gas-vs.-diesel debate depends primarily on personal preference. A diesel engine can add about $2,000 to a unit’s price tag, but manufacturers say diesel engines last longer and are more energy efficient.
 
“It used to be that the cost of fuel was significantly less with diesel, but it’s not necessarily that way any more,” says Don Reed, rental division manager for Ramrod Equipment, a division of Leon’s Manufacturing Co., Yorkton, Saskatchewan. He estimates  about 70 percent of Ramrod’s units are sold with gas engines.
 
Selecting attachments is another crucial step in the purchasing process that affects total cost as well as productivity. “Mini skid-steers are defined by the attachments you put on them,” Reed says.
 
Initially, contractors should choose loader attachments that can be used to complete as many on-site jobs as possible, says Aaron Kleingartner, loader product specialist for Bobcat Co., West Fargo, N.D.
 
“For example, almost every contractor can use a combination bucket and pallet forks on landscape construction jobs,” he says. “They also might find several uses for a soil conditioner, which can be used to clear rock, unwanted weeds, existing turf and create a final grade in preparation for landscaping, planting seed or laying sod.”
 
Other attachments manufacturers identified as popular with landscape contractors include a leveler for spreading materials and backfilling trenches; a trencher for creating irrigation trenches and drain tiles; and an auger for digging holes for trees, shrubs or fence posts. Attachments range from several hundred to several thousand dollars, manufacturers say (for more information on attachment price points, see “Getting Attached” on page 70).
 
Most compact utility loaders are sold with a bucket, manufacturers say, adding that it’s common for contractors to start out basic and purchase more attachments over time or rent them on an as-needed basis.
 
“This provides contractors the option of exploring new services, determining whether they fit their businesses with only a minor investment,” Kleingartner says (for more information on renting mini skid-steer loaders, see “Hands-On Research” on page 66). 

FINANCE RIGHT. Just as contractors have a menu of attachment options to choose from, their financing options run the gamut, as well.
 
One possibility is customer-sourced financing, where the contractor lines up financing on his own through a local or national bank, financing company or credit union. Financing sources say this method is not the most popular because it can be difficult for a small business to obtain a loan. Also, dealers and manufacturers typically tout more attractive promotional financing deals with low APRs or “no payments for one year.”
 
Andre can attest to difficulty with customer-sourced financing. “Being a small businessman, even though I’ve been in business for 25 years and even though I have platinum credit, it’s difficult for me to secure a loan on something,” he says.
 
The second option is financing through a dealer, which may be supported by the dealer, manufacturer or local or national bank. “The specific options vary from dealer to dealer, but they may include a conditional sale or finance contract where the contractor owns the equipment or a true or capital lease where the leasing company owns the equipment,” says David Adams, manager of retail finance for Toro’s Landscape Contractor Business.
 
When a contractor opts to own the equipment, it’s generally financed in the form of an installment loan with a fixed monthly payment at a fixed rate for a specific number of months. “From an accounting standpoint, this means the buyer can realize full depreciation and interest on the equipment,” Adams says.
 
Many manufacturers and their financing partners offer flexible seasonal payment plans designed for contractors who may only be able to make payments during their high-volume months. “Many landscape businesses have seasonal revenue, and the benefit of structuring payment obligations to correspond with the business revenue stream provides the opportunity to better manage their cash flow needs,” says Mark Almeter, vice president of CitiCapital’s Bobcat Division, Fargo, N.D.
 
Despite the many buying options available, leasing has become more popular over the last several years, Reed says, estimating it’s a 50/50 split between contractors who choose to lease vs. those who opt to finance. Due in part to the automotive industry’s recent push toward leasing, contractors are familiar with the mentality that affordability isn’t based on total cost, but what the monthly payments are. “As long as you’re bringing in more than you’re putting out, you’re ahead of the game,” Reed says.
 
In addition to a lower fixed monthly payment, a lease typically offers the benefit of upgrading to a new piece of equipment every few years (which, in theory, creates less maintenance-related downtime) and the option to buy at the end of the term for a pre-determined price or return it to the dealer with no obligation.
 
Also, Toro’s Adams adds, “With a true lease, debt is not shown on the contractor’s balance sheet and there is no concern about owning equipment they may not permanently need.”
 
However, similar to leasing a vehicle, the lessee can be penalized for returning equipment that’s damaged beyond normal wear and tear.
 
Typically, but not always, equipment leases constrain buyers to specific usage limits that, if exceeded, can rack up penalty payments. Contractors can expect a standard lease agreement to limit usage to 800 to 1,000 hours per year, Almeter says.
 
Lease agreements usually include a policy that states all of the equipment’s normal functions must be in working order upon return. To remedy any damage, lessees pay for the fair market value of repairs.
 
“The return policy is designed to encourage contractors to maintain the equipment in safe working condition and to prevent the equipment from being abused,” Almeter says.
 
Like with buying a car, there’s no catch-all. Jim Olson, president of James Olson Landscaping, Northbrook, Ill., has both leased and bought compact utility loaders. He leased his first compact utility loader eight years ago and then purchased it when the term was up for a $1 buy-out. This year, Olson financed his second mini through the manufacturer who offered an attractive deal.
 
As Olson suggests, “Each contractor must decide what’s best for their particular situation.”