Equipment Leasing and Rentals - A Cost Control Mechanism

Posted By:Infrabazaar

Construction companies are under tremendous pressure to minimize the capital outlay. Hence, they renting equipment seems a viable option to cut capital expenses. Leasing/rental of construction equipment is still a very fragmented industry in India, but is expected to show strong growth, possibly higher than 30% annually over the medium term. Several OEMs have already constituted dedicated teams for the rental/leasing services.

The main reason as why Equipment Rentals are fast catching up is Cost Control.

Capital Release: In times where they have to demonstrate high levels of profit compared to invested capital, contractors are increasingly eager to rent equipment, as it allows them to minimize the size of their equipment fleet. Less immobilized capital, allows for improved cost control, lower maintenance costs as well as for a reduction in transportation fleets. Renting equipment with operators even allows for optimizing staff costs.

Range of equipment available: Some rental companies have fleet inventories reaching up to the hundreds of thousands of pieces of equipment while others are very specialized in only a very specific product range. They can thus supply the most comprehensive range of state-of-the-art equipment – with or without qualified operators - as and when contractors / customers need it. Fleet age varies from place to place but usually they are well maintained as they are always in running condition.

Maintenance and compliance: Rental companies bear the responsibility for ensuring the equipment they rent out complies with all applicable regulations. Safety checks are performed before each delivery. Routine maintenance and major repairs are typically handled by the rental company, saving the renter the expense of having a maintenance crew on staff.

There are several advantages of leasing or renting equipment:

1- You don't have to pay the full cost of the asset up front, so you don't use up your cash or have to borrow money

2- You have access to a higher standard of equipment, which might be too expensive for you to buy outright

3- As interest rates on monthly rental costs are usually fixed, it is easier to forecast cash flow

4- You can spread the cost over a longer period of time and match payments to your income

5- if you have not bought the asset outright, you won't have to worry about any overdraft or other loan taken out to finance the purchase being withdrawn at short notice, forcing early repayment

6- if you use an operating lease or contract hire, you may not have to worry about maintenance

7- the leasing company carries the risks if the equipment breaks down

8- the leasing company can usually get better deals on price than a small business could and will have superior product knowledge

9- if you need to upgrade or replace the equipment, you can simply make a small adjustment to your regular payment rather than invest a lump sum upfront.

Also on the hind side of it if you have an idle asset it will sit on your head like a burden which once upon a time would have cost a fortune while buying, hence if you have a tangible or physical assets - such as vehicles, machinery and equipment which is idle make the most of it by renting to have better cash flow.