September Equipment Extra: Acquiring a Mini Skid-Steer

Like the many creative attachments that can be paired with a mini skid-steer, creative ways to get hold of one are allowing contractors to add them to their equipment fleets. Customers generally fall into one of three categories when purchasing equipment — cash buyers, financing customers and leasing customers, says Mark Almeter, vice president and regional manager of CitiCapital, West Fargo, N.D. Using cash can be seen as the least expensive, which may or may not be true depending on the customer’s financial situation, he says. “Cash purchases require 100 percent of the purchase price paid up front and can cause significant cash flow challenges for the customer,” Almeter says.

But other methods can make better use of finances. To avoid an immediate impact on cash flow, financing can allow the buyer to pay over time. But the financing terms must be matched to the expected use so a contractor doesn’t owe more than the mini skid-steer is worth at the end of the term.
 
“With a loan, the contractor owns the equipment,” says David Adams, manager of retail finance for Toro’s landscape contractor business division. “From an accounting standpoint, this means they can realize full depreciation and interest on the equipment. It also provides flexibility as the contractor may keep the equipment as long as they want or sell the equipment at any time that makes sense for the business.”
 
Financing of this type is like a loan taken out for automobiles. The contractor makes a fixed monthly payment at a fixed interest rate for a specific number of months. Some manufacturers offer “no payment” or “no interest” deals that can help contractors during leaner months, when less cash is coming through the business. Low fixed-rate terms also might be offered. Dealers are often the best place to inquire about this type of financing since dealerships are motivated to move equipment, more so than a loan taken out from a bank. In addition, some financing programs allow customers the flexibility to skip payments if needed in order to better manage cash flow.
 

Beaudet chose to pay for his mini skid-steer through financing and says he’s glad he bought it. “Ultimately, what it enabled me to do was compete,” he says. “It enabled me to do things my competitors couldn’t do because they didn’t have one. I knew I needed one from the get-go.”
 
Dealer-sourced financing can include loan options where the contractor owns the equipment outright or for a nominal amount at the end of the finance term, Adams says. Loans may be on a revolving (also called open-ended) basis or installment (also called closed-ended) contracts.  
 
Leasing is another option to acquire equipment such as a mini skid-steer.

“It allows the customer to directly match the business cash flow needs to the term of equipment use,” Almeter says. “Leasing is often more attractive with customers who choose to update their equipment more frequently while maintaining lower payments.”

 
When a contractor leases equipment, they’re entering into a legal contract to “rent,” rather than own, the equipment for a specific amount of time, Adams says. “A lease generally offers lower fixed monthly payments than a loan,” he says, but there are often specified maintenance and hours/usage requirements on the machine. In short, if the contractor uses the machine for more hours than expected or doesn’t keep up with maintenance, they’ll have to pay a penalty at the end of the term. At the end of the lease term, a contractor may have the option of buying the equipment, re-leasing it or just returning it.
 
“Due to the difference in the accounting treatment of a lease, customers should understand their specific needs prior to entering into a lease arrangement,” Almeter says.

Leasing can have advantages that buying a unit with cash doesn’t. Leasing offers lower monthly payments, frees up working capital and can make it easy to switch to different equipment at the end of the lease, Adams says. But leases also mean that the contractor doesn’t own the equipment and leases are contracts that legally bind the customer. In addition, leasing means the contractor can’t tax advantage of the tax advantage of depreciation. And the penalties for returning machines that aren’t properly maintained can be a drawback, Adams says.