Innovative Financing Solutions for Construction Equipment

August 6, 2024

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In the construction industry, contractors typically tie up a sizeable portion of their capital in their equipment. Obtaining the best possible financing option can, therefore, help contractors maximize their cash flow and improve their bottom line. In this edition of Experts Corner, Dean Trybuch, our equipment financing expert, explains some of the options that are now available.

What are some of the problems contractors run into with traditional financing?

Traditional lenders, such as major banks, know all about finance, of course, but they don’t understand the construction industry or all the variables that contractors have to deal with. So, they’re not going to be very flexible in terms of accommodating seasonal variations and other nuances. Also, banks don’t know the value of the equipment over its lifecycle – for them, it’s just securitizing an asset - so they may not be aware of the best options.

For similar reasons, banks also don’t offer much flexibility regarding buy versus lease arrangements. Some of our customers have shared that they find banks challenging to deal with because there is always a push to take control of all their banking rather than focusing on the current need.

What role do SMS Equipment and Komatsu Finance play in equipment financing?

We aim to give our customers a one-stop shop by removing all the headaches of making financial arrangements. We have a team of people who understand finance and have many years of experience in the construction industry. So, we can help customers select the best financing option and then prepare the paperwork with an accredited financial institution.

We will collaborate with the customer’s bank or another traditional lender or, more frequently for us, with Komatsu Finance, which is a captive lending organization owned by Komatsu. Many of our customers end up taking the Komatsu Finance route because the people there understand the equipment, its lifecycle and how it’s used, and that puts them in a position to provide options that are more attractive than what banks could offer.

What are some of those options?

With a seasonal business, we can offer a payment plan in which the payments are higher during a contractor’s most productive months, and then lower during the slower periods.

We can also get very innovative with purchase versus leasing arrangements. For example, we can arrange a flexible lease option to align payments based on equipment hours. We also provide options at the end of the term - the customer can purchase the equipment, return it, or replace it to take advantage of the latest technology.

Another option we offer is a rental purchase agreement, which allows companies to rent equipment and build equity toward a future buy-out.

A fairly unique program that we have offers financing plans that include parts, maintenance, and repair. This not only enhances the lifecycle value of the equipment but establishes the maximizing of uptime as an integral part of the equipment investment. For us, it’s a partnership, because we’re constantly monitoring the equipment to ensure that downtime is avoided, so we’re protecting the asset and the customer against losses.

I should add that with Komatsu Finance, customers can take advantage of manufacturer subsidized programs for specific types of equipment.

This can mean much lower rates than a bank could offer, and, in some cases, as low as 0% financing.

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