When it comes to obtaining equipment for your growing business, you have some options for procurement - rent, buy, or rent with an option to purchase (typically known as a rental purchase option or RPO).
Oftentimes companies aren't sure of a long-term need for equipment, or sometimes they don't have cash on hand for a down payment, so renting is the best option. But if purchasing that rental begins to make sense, CCG can help turn that rented equipment into owned equipment.
Should I Convert My Rental?
Even if you are currently renting a piece of construction equipment, there is a reason to consider a rental conversion in today’s economy, especially for construction companies that are growing their business and expanding their equipment fleet. With year end approaching, now may be the best time to speak to your financial advisor about the benefits of purchasing your equipment, and it is also a great time to take advantage of the conversion deals that may be offered by equipment dealers. Additionally, purchasing the equipment could provide you with tax savings through accelerated depreciation using the Section 179 and Bonus depreciation tax breaks.
However, this post does not deliberately speak about the benefits of purchasing over renting and vice versa. At CCG, we understand how construction companies operate and know that this decision is dependent on several factors. With that in mind, we want to guide you through the process of a rental conversion so that you know what to expect.
1. WHat is a Rental Purchase Option (RPO)?
Rental Purchase Options (RPOs) are rental agreements that apply a percentage of the rental payment toward the purchase price of the equipment. At the end of the established rental term, the company has the option to purchase the equipment but is not obligated to do so.
Consider the Projects You Have
Consider the longevity and frequency of your projects. If you are constantly renting a piece of equipment for several projects or for an extended amount of time, owning that equipment may make more financial sense for your business. With an RPO, you are given time to see the progression of your projects while building some equity in the equipment should you determine you have enough work on hand to purchase the equipment.
Incentives for Rental Conversions
Depending on many factors, equipment dealers may offer incentives for converting equipment at the end of the year. If you established an RPO, you can get credit for a portion of what you’ve already paid in the rental. But if you are interested in converting your rental and do not have an RPO, it may be worth approaching your dealer to discuss a purchase as if you had an RPO, especially toward the end of the year. Although your dealer is a trusted source for purchasing and servicing equipment, keep in mind that they would prefer to sell you equipment than be the “bank”.
2. HOW WILL IT AFFECT CASH FLOW?
Converting a rental does not necessarily have to deplete your cash flow. You may decide to finance your piece of equipment on its own, but know that you may also be able to finance the equipment in conjunction with other equipment, without adding to the monthly payment. A lender like CCG can look at your financial statements and equipment to determine the best way to structure your loan so that it doesn’t negatively affect your cash flow. If you are considering converting your rental, call your financial advisor to run the numbers. You may be surprised!
3. Find a Lender That Looks Out for Your Best Interests
Not all lenders are alike. When converting a rental, look for a lender that is knowledgeable about construction equipment and is able to configure a loan that meets your company’s needs. A lender like CCG can convert your rental to a purchase or refinance your existing equipment by consolidating your debt into one loan. With this structure, your monthly payment may not increase, and you can use the additional cash to grow your business.
If you are seeking more information about converting a rental or taking advantage of year-end sales on construction equipment, give CCG a call or contact us here. We have representatives in your area that can walk you through the process and discuss a financing option that fits your company’s needs.
