Seasonal Payment On Construction Equipment Leases Can Greatly Improve Cash Flow Management
Leasing construction equipment is a great way to gain a high amount of debt financing leverage for your business.
At the same time, if the construction work you undertake is seasonal like many construction companies, then you’re likely going to have a seasonal income stream.
With most debt financing facilities monthly debt servicing is required to cover off the interest expense and pay down the principal balance.
One of the advantages of securing construction equipment financing is that lease repayment schedules can be arranged for seasonal cash flow such as semi annual payments or even annual payments.
Another alternative is monthly payments for the construction season, but with the monthly payments adjusted to include the interest and principal required for the whole year. In this way, there would be no payments required in the off season months, making cash flow much easier to manage.
Operating Leases Can Also Help With Construction Cash Flow Management
Another way to further improve the cash flow of you business is by structuring your construction equipment leasing facility into an operating lease where by a portion of the principal, likely between 10% and 30%, is not factored into the repayment schedule during the term of the lease.
The scheduled payments would only include the interest cost incurred on the total principal outstanding as well as the principal portion that is to be repaid during the lease term.
Once the lease comes to an end, if the business wishes to retain the equipment, it would have to pay out the deferred principal portion or balloon payment in cash or refinance it in some other manner.
By structuring a construction equipment lease in this fashion, the business is taking the least amount of money out of its cash flow to service equipment lease payments.
For more information on the different ways we can work with you to structure a construction equipment lease to meet your unique requirements, please give us a call and we’ll go through the available scenarios with you and get all your questions answered right away.
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