Skid-Steer Supplement Extra: Dollars and Sense

Large equipment often requires an overwhelming financial investment, coupled with contract terms and regulations that confuse rather than clarify. Choosing to purchase a skid-steer loader is half the battle, but then contractors must ask themselves, “How will I pay for this equipment?”

For the most part, contractors’ choices are threefold: They can finance the equipment through monthly payments, lease the machine for a set period of time or rent the equipment for a specific project. Each option poses advantages for the savvy spender – depending on his or her plans for equipment operation. Thus, financing choices are best made in the light of careful research and planning, suggested Steve Davis, manager of market development, John Deere Credit, Madison, Wis. “Financing options vary based on the needs of the customer across customer segments,” he stated. “It all depends on customers’ business relationships, their needs and how they will use the equipment.”

FINANCING. Contractors can choose to finance their equipment through a variety of loan programs, featuring a mixed bag of interest rates. Since financing programs range across the board, business owners often can find a plan that fits their plans for the equipment, noted Kelly Moore, product manager, Gehl, West Bend, Wis. “Financing options for customers have really broadened in recent years,” he explained. “There are so many different percentages of interest and the programs are pretty well catered to the needs of the individual buyer. It’s advantageous for the customer to look at the equipment and really talk it through, seeing what’s best for his or her monthly income and establishing the best purchase.”

For example, Davis listed several financing options available through John Deere credit, ranging from 0 percent interest for 24 months to a 4.9-percent interest rate across a 60-month period. Contractors might choose the 60-month payment for the lower monthly payments, but other business owners might want to pay off the machine quickly and accumulate no interest in the process, he suggested.

In addition, some manufacturers offer financing options that space the payments in accordance with the contractor’s busiest – and most profitable – times during the season. Mark Mullowney, national finance manager, Toro Sitework Systems, Bloomington, Minn., identified a financing program with 0 percent interest for the first six months so contractors can defer payments until the machine becomes profitable. “If we have a customer in Minnesota looking at a skid steer in January, and he’s not using the machine until March or April, we give them the ability to get used to it, get jobs and have revenue coming in before they write a check,” he described.

Another Toro financing program allows customers to “skip” three months of payments or lump 12 installments into a nine-month period so contractors aren’t shelling out payments during the slower parts of the season, Mullowney added. “So, in the off season, when they’re sitting at home worrying about bills, this is one they don’t have to worry about,” he said.

LEASING. For contractors who may not want to commit to the purchase of skid-steer equipment, but are interested in the eventual option to buy, leasing may be a wise choice. Leasing poses advantages to contractors who want to keep a constant cash flow and don’t want the equipment use to necessarily affect their bottom line, Mullowney noted. “People sometimes choose leasing because of the tax write-offs – in that case, the lease comes over the buy,” he added.

Leasing plans vary to the same degree purchasing options differ. Davis described two particular types of leases through John Deere Credit: the fair market value lease and the stated purchase option lease. “The fair market value lease is a series of rental payments as opposed to a finance contract,” he described. “You’re paying for the use of the equipment, and it requires a payment up front. The cost of getting into a skid-steer loader is fairly minimal, and the contractor can use the equipment for up to 800 hours a year.”
Davis said this option is a good solution for contractors who plan to use the equipment extensively but may not be 100 percent sold on purchasing the machine. At the end of the lease, contractors can then determine the fair market value of the machine and decide on a purchasing option.

On the other hand, the stated purchase option lease sets a predetermined value of the equipment at the end of the lease. “We fix the purchase option at the back-end of the lease for contractors who have the intention to make the purchase,” said Davis. “For example, if you have a 48-month lease with a 30-percent residual, you know you can purchase the equipment for 30 percent of the original purchase price.”

Of course, leasing options vary, and contractors need to look ahead to determine whether they’ll appreciate a purchase option at the end of the lease or not. “Contractors need to look closely at their actual needs in the short term and long term and weigh out the best benefit,” Moore stressed.

RENTING. Recent financing trends for skid-steer equipment have moved toward the rental market, as more and more contractors recognize the value of this equipment and decide to give it a try, explained Brad Claus, competitive product coordinator, Bobcat, West Fargo, N.D. “The rental market is really starting to take off because it offers less intimidation,” he explained. Claus added that since the variety of attachments available on compact utility loaders has boosted the machine’s popularity in the landscaping industry, contractors increasingly appreciate the “try before they buy” quality of a rental agreement.

In fact, the versatility created by compact utility loader attachments have caused many sales to be generated from equipment rentals, Mullowney noted. “Contractors sit there and figure it out – they have formed another part of their business they never had the chance to do before, so they can expand their business without investing in anything more than the compact utility loader,” he said. “Then, instead of paying a lot for renting each month, they move toward financing.

“Most contractors who rent the machine for 30 days or more end up buying one,” he continued. “It expands their business without having a high overhead.”
 Davis identified renting as a plausible option for contractors who are new to skid-steer equipment – customers who aren’t sure if the machine will actually help diversify their businesses. “The intent of a rental program is for a customer to use a piece of equipment for a pre-determined period of time for a specific job, based on individual needs,” he related. “It’s a great way to see if it’s something you’re really going to use prior to making a purchase for that type of equipment. You can use it within your business to see if it would be advantageous in your fleet, rather than making an outright $20,000 investment.”

Renting also prevents contractors from tying up capital in equipment they are not using regularly, Moore said. “The customer will pay by usage, renting by day, week or month, and knowing exactly what dollars he or she will have to spend to get maximum usage of that machine and service.”

THE BOTTOM LINE. Financing options range on a broad scale, just as contractors’ business needs vary from company to company. Choosing a low-interest, short time frame financing option might be right for one business owner, while a long-term rental agreement meets the needs of the other.

Trends toward renting or leasing will come and go – and it’s imperative for landscape contractors to get the facts before they finance. “I couldn’t write an article and tell a person exactly what to select,” Davis admitted. “It’s important for customers to assess their individual situations and work with the sales people to find out what is best for their needs. [Financing] is understanding how you’re going to use it, what you’re doing with it and where you’re at in your entire business.”

The author is Assistant Editor – Internet for Lawn & Landscape magazine and can be reached at kmohn@gie.net.