Becoming an owner of a heavy equipment you can consider yourself an owner operator or small business owner. This in itself can be a rewarding career both professionally and financially. However, you are not only a equipment operator but now you are as a business owner and you have additional responsibilities. You are responsible for getting equipment and for running operations. These responsibilities can be expensive. Unless you have enough capital, you will need financing to get your new excavating business rolling.
Getting your first backhoe or excavator is likely your biggest and most important expense because without that backhoe, you don’t have a business. Being as heavy equipment like this can cost anywhere from say $30,000 for something used, all the way to over 300,000 for new, you will need to consider which options is best for you. There are two ways that you can get a backhoe or excavator: purchase it with a loan or lease it.
Purchasing a piece of equipment is pretty straightforward. You make the initial down-payment and then pay monthly until the truck is yours. Financing this equipment can also be quite simple if you are buying new and from a dealer. Most dealers have some sort of factory financing in place with multitple options for you to choose from. If you decide to lease a a backhoe you will find that leasing can be a little more complex. A lease is structured almost like a rental, in which you can use the backhoe in exchange for a monthly payment. At the end of the lease period, you either return the backhoe or purchase it. Often, the purchase price is defined in advance and is known as the “residual value.” Each senario has advantages and disadvantages and each is based on individual situations. This variability makes giving specific advice difficult.
Once you have your backhoe or excavator, your next big cost will be running your business. The biggest expenses for owner-operators are fuel and repairs. You need steady cash flow to be able to pay these expenses on a monthly time frame. Most corporate customers pay on net 30-day terms or even 60 days. That means you may need to wait 30 to 60 days until your invoices are paid, which few new small business owners can afford. This is where borrowing a bit extra at the start is essential for survival. This is a factor that a lot of business owners forget and having a line of credit is crucial to getting through the first few months of operations.
Getting started in any contracting type business can be frustrating if the owner has limited or bad credit. Financing alternatives are still available, though they may be structured differently or priced accordingly. Keep this in mind as you review all your options.
Because the construction industry is an asset based industry, your backhoe or excavator is considered an asset that can be used as collateral for financing. If the you as the owner defaults, that equipment can be repossessed. Also invoices are considered assets that can be financed through a line of credit.
Whether you buy new or used, from a dealer or private, do your homework on the machine you are interested in and most of all spend the time checking out all the alternatives you have for financing that backhoe or excavator.