Building Blocks

Question: My partners and I started a construction company five years ago, and it's really starting to take off. How can we buy the trucks, backhoes and other equipment we need without tying up all our working capital?

Answer: For capital-intensive businesses that need to expand rapidly while conserving cash, equipment leasing can be a great way to go. In a typical operating lease, the bank or leasing company owns the equipment, and the company that leases the equipment makes payments over a period of time--no different from the lease you probably have on your company car. But if you're looking to lease multiple pieces of equipment, you may want to ask your bank about a special type of credit line that lets you finance, say, $500,000 to $1 million worth of equipment. While each piece of leased equipment will need to be approved separately, having a credit line like this in place can streamline the process of obtaining lease approvals and get your trucks on the road that much faster. 

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Your ability to obtain equipment-lease financing depends on a number of factors, says Mark Nuelle, a partner at B2B CFO, a consulting firm that provides outsourced executive services. These factors include the equipment's purchase price; the leasing company's ability to transfer the equipment to another lessee; the residual, or resale, value of the equipment in the event of a default; and the strength of your company's credit and cash flow. Says Nuelle, "The leasing company will have a different [outlook] on the lease terms if the equipment has its own revenue stream."