Buy, Rent and Lease Options

There are different methods of acquiring the construction equipment required for a project. These are namely buying, renting and leasing. There are advantages and disadvantages associated with each of these methods. Before acquiring the equipment, it is essential to explore all the options by considering various parameters namely company's cash flow, working capital, equipment utilization and its maintenance, obsolescence and replacement of equipment, operating conditions etc.

Buying

Buying results in direct ownership of the equipment. Acquisition of equipment by buying is done either through cash purchase by using company funds or through financing purchase. The outright cash purchasing is done when sufficient funds are available. However cash purchase can have an adverse effect on company's cash flow as it reduces the liquid asset thus affecting company's working capital. When sufficient funds are not available for outright cash purchase, the equipment can be acquired by finance purchasing wherein the purchasing is done through loan arrangements from lenders i.e. banks or other financial institutions that includes the payment of loan through installments along with an initial down payment. One of the main advantages of owning the equipment by outright cash purchase is that it may result in lowest cost per operating hour as compared to renting or leasing. Other advantages associated with buying include, complete control of the owner over use of the equipment and its maintenance and replacement of equipment when it is no more economical. In addition, there is also income tax benefit associated with depreciation of the equipment. Acquiring the equipment through buying is an economically attractive option when there is more work load leading to higher utilization rate of the equipment over its useful life. Otherwise it will lead to the risk of not getting the required return on the capital investment if there is not enough utilization of the equipment. This is one of the disadvantages associated with buying. If the equipment is purchased through finance purchasing, the equipment owner has to pay the required loan installment to the lender even when the equipment is not operational. Acquisition through buying may sometimes force the owner to use the obsolete equipment due to financial constraints.