Category Archives: Financing

Ensure that you pay the monthly dues of your heavy equipment

Buying heavy equipment by paying hard cash has now become almost obsolete. No one wants to invest all their reserves into buying heavy equipment and keep their money locked there. They know that by paying hard cash to buy heavy equipment, they will not be able to meet other financial obligations which would be perhaps more important than anything else. Therefore there is no point in keeping the money tied where you have options to take loans from financial institutions to buy construction machines and pay them every month. Contractors big or small have now made this as a mandate of their business. They do not invest their reserves into buying heavy machinery and rely on financial institutions to lend them money to buy machines. This is the reason why almost every contractor as well as owners of construction companies tries to keep their credit rating healthy. This will enable them to get loans without any hassles.

Not paying your dues can lead to repo:-

If you think that non-payment of the monthly dues can only affect your credit score, then you will be rather alarmed to know that the banks have the authority to claim the machine back citing the reason as non-payment of monthly dues. Though they do not take such stringent actions immediately and allow the borrower to arrange for funds. Normally, borrower who has the intention to clear the debts but for some reason is unable to pay the due for a particular month can inform the bank well in advance. This results in increasing the chance for the bank to waive off any late payment fees. The borrower will have to pay the interest of the due but that is still manageable. However, for borrower who just does not want to pay the dues, the banks do not have any option other than to repo the heavy equipment.

One fine morning your machine is gone:-

Your bank might send you several notices to pay the due but if you ignore them and do not communicate with the bank, the bank will contact the repossession team who will just come to your construction site or the place where you have the machine and will tow it away. The repo team may or may not inform you about their arrival. Generally, they do not inform the borrower about their arrival and they will slyly tow the machine and bring it in their possession. You can’t complain the policy as the bank has first lien on the machine and since you have failed to pay installments for months they have every right to repo your machine. Therefore, it is recommended that you allocate some funds out of your business to pay your monthly dues rather than facing the music.

Business will suffer:-

Once the heavy equipment is taken by the bank and you do not have machine to work, your business will suffer severely. Construction companies never take this risk. It only makes matter worse for them.

 

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Administrative and finance are two crucial departments of a construction company

Every company has few very crucial departments without which the functioning of the company is unthinkable. Like ways, the two most important departments of a construction company can unarguably be the administrative and the finance department. It is perhaps after the consultation from the head of these 2 departments that the company can take any major decisions. If either of these departments does not give their nod, there are high chances of non-happening of an activity. If heavy equipment and construction laborers are two vital parts of a construction company on the field then the admin and the finance departments are another two vital departments off the field.

A person who wants to establish his own construction company needs to understand the workings of these two departments thoroughly and once he/she is confident that he/she can take vital decisions after understanding the functioning of both the departments, he/she should go ahead. Rest of the important parts like knowing about heavy equipment, what machine is needed for which purpose can be advised by other professionals but there is no expert per say when it comes to the finance and the admin departments. No one can guide you accurately when it comes to the finance section as they do not know your business plan and the capital you have for investment.

If only someone knows about your business plans, they will be in a position to guide you. This work is ideally done by the Head of Department of the finance section since he/she knows about most of the projects the company is working on. However, if you are the owner of small sized or medium sized construction company then you probably not be able to afford an expert and qualified person who would be heading the finance department. It is perhaps you who have to take the lead and take all the important decisions. You will definitely be having few men working under you but they can only help you with data, the rest will be your call. Therefore it is necessary to understand how both these departments work so that you have a fair idea as to where the company is heading.

The work of the admin team is primarily restricted to taking care of the employees by providing them with all the necessary means that will enable them to work in a safe environment. In case, if the employee has any problem, the first point of contact he will approach is the admin team who in turn will check how to get that resolved.

If there is any monetary involvement in sorting out the problem then they might then get in touch with the finance team and check what can be done. If it pertains to any other issue that doesn’t seek the requirement of the finance team, then the process may become a lot simpler. However, it has been witnessed in most of the cases the admin team has to work in sync with the finance team and vice-versa making them the 2 most important pillar of the construction company.

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Do not spend all your reserves for buying heavy equipment – Take a loan instead

When you are in the construction business, it is very important to keep your reserves intact and not spend the entire sum buying heavy equipment. The money that you make from your business helps you to run the business and also allows you to buy some machines that are much needed. However, it is also important to understand that these construction equipment are too expensive and one should not utilize all the reserves in buying machines. They should rather look out for options that can be adopted instead of clearing the reserve amount from your account.

If the need of the heavy equipment is too urgent then you should probably look for taking a machine on rent. You will a lot of people willing to rent their machine. Here you do not have to shell all that you have in your reserves to get the stuff. You can pay the rental amount to the giver on each and every month till the contract expires. The rental amount must be agreed upon by both the parties and if you see a chance to negotiate the amount, do not hesitate to do so.

However, if you feel that you may need the machine for your future projects as well and you consider it to be an integral part of your project then you can opt to buy it. Here you have 2 options, either you can buy a used one or you can go for a brand new machine. The used machine will definitely cost you less than a brand new one and hence if you feel that you want to content yourself by buying an used equipment then you got to start looking for sellers who want to sell their machines. Once you ready for the purchase, the next crucial thing that you should do is always pay a small portion of money from your reserves as down payment. The rest of the money should be borrowed from some organized financial institution.

Though you have to pay some interest on the amount you have borrowed but that will not lead to the complete depletion of your financial resources. You will still have money to run the company which is the most needed aspect when you have a construction business at hand. You always got to ensure that you have parked sufficient money for the smooth functioning of the company. Your employees should get their salaries on time and you should carry on with the same goodwill that you have earned over the years.

Before you go for the loan, do some research on the banks that offer business loans and at what rate of interest are they offering the money. They may have some other terms and conditions that one needs to know before they end up taking a loan from them. There may be certain hidden costs which they will come up once you have taken the loan. So try and read the reviews of their existing customers. If they are happy and content with the services of the bank and if they recommend others to go with it, you can take their advices seriously.

Don’t blindly trust any financial institution to take a loan on heavy equipment

Getting loans has become so simple that for any reason, financial institutions are ready to offer you loans. Be it buying a house or a car or for that matter buying furniture for your home, all you have to do is approach a financial institution and show them your good credit rating. They would be more than happy to offer you loans. If you need a higher amount, then they may also ask for your income and expense statements and other relevant documents that show the amount you earn in a month. On that basis, they evaluate and offer loan to you. This all sounds good when you have a descent income every month and a stable job with job security. However, things turn sour when it comes to individuals who want to start a business and are in search of institutions who can lend them money. Things go awry when the loan is for purchasing heavy equipment. Heavy equipment are expensive items and most banks do not want to finance it wholly. They would want the person to invest a portion of his money and the rest can be arranged by way of loan. That is also a valid point but for guys who are experience a severe financial crunch, they may find it hard to pay the initial portion.

For such individuals, there are institutions who will offer them easy financing but at an exorbitant rate. You may get tempted to take money from them and you may not read their terms and conditions and will sign on the dotted line but that will be just the beginning of your misery. You will be required to pay a very high rate of interest and probably very high service charge as well. It is prudent to first understand why they are offering you a loan when other recognized banks are not. They may have certain conditions that may not be favorable to you.

In order to stay away from such financial loan offering companies, you first recognize them. The first question you should be asking is why they are ready to give you loan when other companies have clearly defined their conditions. What happens if you are unable to pay the loan in a timely manner? Do they have the authority to take away the heavy equipment? On what terms are they offering the loan to you? These are few questions for which you need to find an answer. Check their websites and see if there is something that they are trying to hide from you. Look for complaints and grievances from other customers. You can also set up a forum where you can ask people about their views on such institutions. You will get plenty of answers on which you can make a sound decision.

Take loans to finance purchase of heavy equipment

It was never easy to start a new business and in today’s time, it has become more difficult to give a head start to a business given the sort of competition one has to face on a daily basis. A person has to sacrifice a lot to keep his business floating. On top of it, he has to juggle well between his personal and professional life. Under all these circumstances, when one is struggling to keep his business moving, it becomes difficult to incorporate something expensive in the business. Well, business in a construction industry is all about that. You have to be ready to bring in new equipment if the business needs it. You can’t let the offer go just because you can’t afford to buy the machine. Most of the time, a person also gets business after being evaluated on the kind of machines he possesses. Therefore, he needs to have the machines that are a part of his business requirements.

For small construction companies, it may not be so simple to buy brand new equipment. They have experienced serious financial crunch during the beginning of their professional career. They may not want to invest all that they have in buying equipment and then struggle for finances to meet overhead expenses. These overhead expenses cost dearly too many companies who are not financially sound. This has also become the reason why many start-up companies are forced to shut their businesses and look for something else. Construction segment is undoubtedly the most rewarding sector; however it rewards people who have managed to stay in this sector for years and have stood firm during turbulent times.

Taking a loan to finance heavy equipment may sound like a good option but it also has its limitations. One needs to be very sure that he will be able to pay the loan in time. This will help him to keep his credit score in place and will also keep his business moving. There are many financial institutions that are ready to finance people looking for loans on heavy equipment. It would be prudent to first check the interest rates of the institution before you take the loan. Many financial institutions offer lower rate of interest but they have certain service charges that are very high. It may make no sense to you to pay that high service charge to the company just to buy low interest rate. If you look closely, you will definitely find someone who is charging the service charge defined by their governing body and the interest rates as stated in the norms. That sort of company should be the one you should be looking at. Simultaneously, also understand the terms and conditions well. For instance, the term of the loan is crucial to understand. Also, the plan should have a provision to make early or part payment whenever you have excess money without charging anything extra for that. Ideally, the heavy equipment manufacturing company will arrange financial institutions for you. But if you want to use the services of any other organization, you are free to do so.

Principal Questions to Be Asked When Financing Your Heavy Equipment

Established contractors prefer to finance their bulky apparatus instead of procuring it with a huge amount of money. This financing technique brings the benefits of cash flow in their trades. If the contractors want their procured equipment to be disbursed for itself as it is being employed, then the process of financing can be a development engine for their businesses. When the suppliers desire to differentiate the asset purchase with the appointing of an employee, they crave for both so as to produce their keep at the end of the day. An excellent analogy assists the employers to get the salary of the entire year on first day.

If you take the direction of financing, it is necessary to know that all the apparatus finance contracts are applicable for agreeable tariff treatment according to the benefit of Section 179 hastened depreciation. In most of the cases, the contractors can deflate the total amount of the paraphernalia in a year as opposed to lettering it off over a five year term period. The sum of write off differs from time to time. Most of the weighty apparatus companies have more than one financial organisation to vend their equipments in profitable price. Here in the article, you will get to know the most important questions that usually determine the performance of your selected finance firm.

Is the funding company a key lender?

Many kinds of money mongers are available on the souk so it is important for you to know which type of lender is suitable for your business. Usually, brokers collect money from other loan companies to run their process of business deal. Their interest rates are higher and the contracts are unsecured. The publicly-traded and bank-possessed investment organisations are mostly preferred by the construction industry.

Current Rate in the Financial Heavy Equipment Market

Generally, every moneylender in the construction paraphernalia offers fairly same rates. Be cautious of the shortest rates because the money mongers may take other charges and fees to cover up this gap. It is essential for the contractors to find out those organisations that maintain a valuable relationship with their end clients.

To enquire about the disbursement options

It is good process to verify the authenticity of the financing concerns. The reputed funding organisations proffer flexible payment alternatives for instance 12, 24, 36, 48 or 60 months. It is sensible for the contractors to choose the long term so as to decrease the amount of monthly imbursement.

Is the financing organization proffers tax benefits?

The construction business contractors should examine that whether their desired funding organisations offer any tariff benefits or not. Most of the finance deals are based on balance sheets and depreciation. It is advisable to the suppliers to discuss the matter with the tax consultants so as to select the best financial company.

Financing is an extremely effectual method of attaining new heavy equipment while controlling the monetary budget and capital flow. Knowing, with which financial company you are working, enquiring the important queries and reassessing your contract will assist you to avert unpleasant bombshells in future.