A decent used skid steer will cost you anywhere from $10,000 to $40,000.
In the $15,000 range you're usually looking at a model that's ten or so years old, while at the top of the range, you're usually looking at some equipment that's newer.
When people ask about leasing construction equipment, often they mean "rent" construction equipment.
The distinction between renting and leasing in equipment is pretty much the same as for a car.
- Renting Equipment typically means for very short term, as in days, weeks, or months.
- Leasing Equipment is just like with a car: you essentially take ownership, but with lower payments than a full purchase, and after a few years you can give the equipment back or keep it for a "residual."
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Rent Vs. Buy Vs. Lease your Skid Steer: Which is best?
It depends. If you really only need the equipment for short term, and not very often, renting is probably smart.
It's only smart, however, if you need the equipment almost never.
This is because, just like renting a car, the rental rates can be exorbitant. For example, a used skid steer that you could buy for about $25,0000 might rent for $2,700 a month, or $1,000 a week.
It doesn't take very many monthly rentals before you would have bought yourself a skid-steer.
If you plan to use the skid steer regularly, you've got four options which are better than renting:
- Come up with some cash and buy a skid steer
- Borrow money from the bank for your skid steer
- Lease a skid steer
- Do an equipment loan for a skid steer.
Let's talk about these four options -
Come Up With Some Cash And Buy A Skid Steer
Ok, this isn't an option for many, because most don't have the cash laying around, and if they did would probably not want to take it out of working capital. But if you do have the cash just sitting there you can do it.
Benefits of Paying Cash:
- You don't have to screw around with paperwork and nosy loan people qualifying you.
- You don't pay any finance charges - this saves you a lot of money if you have bad credit, but not so much if you've got good credit.
Drawbacks of Paying Cash
- Then you don't have that cash.
- You're paying with "after-tax" dollars - in order to have, say $50,000 in cash, you have to earn $75,000 (if you're in a 33% tax bracket).
- Not as tax-friendly as a lease.
Borrow Money From the Bank For Your Skid Steer
If you don't have the cash, this is definitely your cheapest option. The problem, of course, is that the only way to borrow money from a bank is to prove you don't actually need any money.
With that being said, if you've got time in business, awesome credit, and you don't need your equipment immediately, you will save a little bit by just going to your bank and asking for the money.
Pros of Bank Lending
- It's the cheapest way to get money
Drawbacks of Bank Lending
- It can take several weeks to get a loan approved, and banks turn down 85% of loans.
- You'll have to provide detailed financials and all other sorts of papers.
Skid Steer Leasing Costs
Until a few years ago, most companies leased their equipment.
Then a tax law called section 179 came and said that you could write off an entire equipment purchase immediately, up to $500,000 for the year, and it made more sense to do an equipment loan.
With a lease, you make payments for a set period of time, typically 2 to 5 years, and at the end you can own the equipment for 10% of the original purchase price or you can walk away.
For example, if you're planning on leasing a $25,000 skid steer for 5 years, here are some different monthly payments you might expect based on different credit profiles:
- In business for 5 years and great credit: $540 a month
- Just started business, but great credit: $750 a month
- In business for 5 years, OK credit (650 or so): $675 a month
- Bad Credit - 590-620 credit score $875 a month
- Really bad credit Varies - up to $1,100 monthly
Our customers are often amazed at the huge swings between the payments of someone with great credit and someone with poorer credit, but from a lenders' perspective, there's enormous risk in lending money for used equipment to small businesses.
(Even when financing heavier equipment like a skid steer)
The top two things that make a difference are having been in business for a while (2 years or more) and your personal credit.
Pros Of Leasing Equipment
- Lowest monthly cost available (Vs. Renting or An Equipment Loan).
- Taxes - you can write off the entire payment as an operating expense.
- You can dump the equipment at the end, or keep it.
Drawbacks of Leasing Equipment
- It costs significantly more if you are new in business or have bad credit.
- You have to pay a residual at the end to keep the equipment.
Skid Steer Financing with an Equipment Loan
By loan, we really mean an "Equipment Finance Agreement." That's kind of like a lease, but instead of owning at the end for a 10% residual, we mean own it at the end for $1. The monthly payments are a little bit higher, and depending on the cost, taxes might not be as advantageous for it, but you'll own it at the end for no hassle.
Loan payments are about 8 percent more than lease payments - so you can pretty much take the examples above and add $50 - 90 for them (if you call us we're happy to show you the difference in payments between a loan and a lease for the equipment you're looking at and your credit profile).
Pros Of Equipment Loans
- Own the equipment at the end for $1 - no residual
- Write off the first $25,000 in costs this year (you have to depreciate the remainder thereafter)
Drawbacks of Equipment Loans
- Slightly higher cost than leases.
- Not quite the tax advantages of lease.
- Like with a lease, higher costs if you are new in business or have bad credit.
One thing should be mentioned about loans and leases - we have included payment examples based on 5 year loans and leases - that doesn't mean a 5 year loan is the best option - if I went over every single time frame and every single credit profile, you'd be pretty bored.
What is the Ideal Loan Term for a Skid Steer Lease?
In general, if you are new or have poor credit, you should pick the shortest time frame you can afford for your financing - for example, with a new business financing $25,000 over 5 years on an equipment loan will run about $840 a month and culminate in total payments of $50,400.
That same business doing the same loan, but for 3 years would end up paying $1,120 a month ($280 a month more) but culminate in total payments of $40,302 - or about $10,000 in savings.
On the other hand, businesses with good credit are usually much better off stretching that payment out as long as possible - the savings for the best qualified business on 5 years vs. 3 years is only about $2,700.
If you are planning on using an equipment loan or lease to buy your skid steer, we can help. Simply contact us or give us a call at (866) 631-9996 to learn more.