Rent, lease or buy a skid steer? Here’s how to decide
By Joanne CostinJuly 27, 2022
You need a skid steer, but determining the best strategy to acquire it isn’t always an easy task. There are a lot of factors to consider. Asking yourself a few key questions will help you make the best decision for your business.
Do you need a skid steer for the short term or long term?
Perhaps the first two questions you should ask are: “What do you need it for?” and “How long do you need it?”
According to Glenn Leppo, CEO of Leppo Rents, a compact equipment dealer with locations in Ohio, Texas, Alabama and Florida, renting equipment allows you to get a machine that works well for the job at hand.
“Today you may need a small skid steer to get into a tighter space, next week you may be working in an open space where a bigger machine will be more productive,” says Leppo. While you’ll pay a premium, renting a skid steer offers increased flexibility and lower financial risk.
“If you’re doing the same thing over and over again, you’re probably going to want to own,” says Leppo. “The costs will be lower over the long term than leasing or rental, especially if you want to keep the machine beyond a typical leasing term.”
Leppo says some contractors will use the skid steer hard for three to five years, then put the machine in the yard to use as a back-up while others may just want to turn it in at the end of the lease term and get a new one. The right answer really depends on the buyer’s equipment plans.
What’s your financial situation?
A well-established business may be able to afford to purchase a skid steer with $50,000-$70,000 cash, but is that the best option? Tying up cash in an equipment purchase could potentially hamper the company’s ability to respond to unforeseen circumstances. An operating lease agreement typically requires little or no money down so cash is preserved.
“The cost per year for leasing skid steers is lower than buying, but the downside of an operating lease is that you don’t have anything when the agreement expires,” says Leppo. If you can benefit from having a back-up, owning may be a better option.
If your business stands to make a profit, you may want to consider the tax advantages of capital leasing and ownership. Section 179 allows companies that buy, lease or finance new or used equipment to write off the full cumulative purchase price (up to $1,080,000) from their 2022 taxable income.
This year (2022) will be the last year where companies can also take first year depreciation equal to 100% of the purchase of qualifying business assets. In 2023 bonus depreciation will be set at 80%. Equipment acquired under an operating lease does not qualify for Section 179 or Bonus Depreciation.
Is the skid steer you want to rent readily available? Availability of the skid steer you want to use might prevent you from renting. Instead, you may have to lease or own.
Factors that impact availability are local market demand and location. “The more remote the location, the more likely you are to own,” says Leppo. Supply chain issues continue to plague the construction equipment industry. With longer wait times for models, the price of used skid steer loaders rose 30% in 2021, according to Ritchie Brothers.
Are you prepared to maintain the skid steer?
An ongoing shortage of technicians means you really need to think about how you are going to maintain your skid steer. Renting a skid steer puts most of
those responsibilities on the rental dealer.
“Some buyers only want equipment that is under warranty,” says Bart Danieluk, director of Capital Financing for Wacker Neuson America Corporation. “Others want to keep it forever.”
Leppo cautions that it may be difficult to find someone to fix lesser-known brands of skid steers. “Unless you have the skills and the parts, you should have a good dealer for whatever brand you are buying,” he says.
According to Dusty Kelchen, marketing director for GreatAmerica Financial Services, one advantage of working with a manufacturer or dealer to finance equipment is that warranties, service agreements and training can usually be rolled into monthly payments. Attachments can also be incorporated into the loan or leasing agreement. GreatAmerica provides financing and leasing for construction equipment manufacturers, such as Wacker Neuson and Husqvarna Construction Products.
If you think you want to own the equipment at the end of a lease, Danieluk believes you may be better off buying. When you buy you can typically take advantage of low-interest financing. With leasing, you will pay a monthly tax on the lease, and then you will also have to pay a tax on the purchase and probably won’t get a low rate at the end of the lease.
What do I need to be wary of when leasing?
The lowest leasing rate may not always be the best deal. “You should always look at the end of term agreement, to see if there are any fees,” says Kelchen. “That monthly payment may be lower, but there could be a cost.” Also consider how hour restrictions or tire restrictions could impact the cost or productivity of the skid steer.
“Not reading the entire leasing contract is what gets people into trouble,” says Danieluk. If you ignore communication from the leasing company there will likely be additional fees. Also, if you fail to let them know what you will be doing at the end of the lease, they may bill an additional month.
What should I look for from a lender or leasing company?
According to Kelchen, what differentiates lenders and leasing companies are things like the level of service, longevity, reputation and a relationship with the dealer. “At GreatAmerica, we have one-call resolution,” says Kelchen. “When you call us, the company’s philosophy is to have your issue resolved in one call, which is why our customer service team does not use any voice mail.”
Transparency is another key factor to look for. A reputable company will welcome the opportunity to explain the loan or lease documents.
There are a lot of factors to consider,” says Danieluk. “Ultimately it’s about understanding what’s important to you.”
Solutions can be creative. For example, Danieluk recently structured a 60-month 0% loan for a contractor who had historically leased his equipment. His primary goals were a set target payment and a machine that was always under warranty. He knew he would use the machine 2,000 hours annually. Under the agreement, the dealer agreed to buy back the machine at 28 months for a set price. In the end, the customer was satisfied with the arrangement, which brought him more value.
If you are finding it challenging to sort through your rent, lease and buy options, don’t hesitate to reach out to your dealer or their lender partners to help you decide or to explore all the possibilities.