02 03 2016

Equipment Financing Benefits Construction Companies

02 03 2016

During Skilled Labor Shortage, Construction Companies Benefit From Equipment Financing

As an owner operating a small business in the construction industry, there are times when it’s necessary to streamline operations and cut costs, which can mean financing construction equipment that you need to complete jobs. In the wake of the Great Recession, banks scaled back their lending and credit extensions, which put significant pressures on the construction industry to trim overhead, lay off workers and do whatever possible to stay afloat in those lean years.

A surging industry

In recent months, though, this sector has been on a steady recovery that is only strengthening as the months pass. For instance, according to the U.S. Census Bureau and Department of Housing and Urban Development, October saw sales of single-family houses come in at a seasonally adjusted annual of 495,000, surpassing experts’ original forecasts. This marks a 10.7 percent increase over September’s rate, and indicates a year-over-year rise of 4.9 percent.

Meanwhile, the commercial real estate industry is also undergoing significant growth, with many economists and analysts forecasting greater improvements in the coming months. According to realtor.com, National Association of Realtors Chief Economist Lawrence Yun anticipates a bright outlook for the commercial real estate sector, despite the many head winds putting pressure on it.

“Temporary turbulence in the financial markets, a stronger U.S. dollar hurting exports and economic weakness overseas chipped away at third quarter growth and led to some deceleration in the pace of commercial investments,” said Yun. “The good news is that these deterrents are slowly residing [sic], which should ultimately reawaken the growing appetite for commercial space heading into next year.”

Overcoming obstacles

Now that the construction industry has taken off again, many contractors and small business owners are scrambling to replace the numerous workers they were forced to lay off during the Great Recession. As BuilderOnline noted, nearly half of contractors and subcontractors are struggling to find skilled workers, with many unable to fill the vacancies created by the housing crisis. Unfortunately, most of the workers released from their positions during that tumultuous and uncertain time have since found employment in other fields. This “labor migration” has left construction executives struggling to find the skilled workers needed to complete the intricate tasks necessary for building structures of all shapes and sizes.

Construction executives and small business owners who want to remain competitive in an increasingly aggressive sector will need to offer workers wages higher than their industry counterparts. Without the best finishing carpenters or top notch pipe fitters, construction firms will have a difficult time appealing to potential consumers and clients.

However, paying higher wages than the competition can put a dent in the bottom line. As a small business, profit margins can be razor thin, which can potentially discourage owners from offering the right amount out of fear of losing money.

The benefits of financing equipment

One of the best ways construction firms can meet surging market demands and remain competitive in the industry is by financing equipment. Utilizing financed machinery, small business owners gain many benefits, such as reducing overhead costs, accessing top-of-the-line technology and, most importantly, the ability to grow operations and expand into new markets.

Instead of shelling out the full price for equipment up front, financing equipment lets owners make reasonable and manageable monthly payments. This allows small businesses with tiny margins the flexibility to better allocate their available working capital. In the current environment this might mean offering higher wages to attract the most skilled labor, or pay for higher quality materials.

In addition to only having to make payments, financing equipment also provides considerable tax benefits for small business owners. By taking advantage of Section 179, the IRS lets companies deduct the amount of money paid on any leased or financed equipment up to $500,000! To qualify for the exemption, owners must finance and put the equipment into service by the end of the year. This deduction offers a major incentive to small business owners in the construction field to take advantage of financing equipment to truly grow their companies.

Not only does equipment financing and leasing offer considerable fiscal benefits, but by going this route, owners can stay up to date on all the latest technology. Investing in construction equipment is costly and can carve out a sizable chunk from the company’s budget. Further, once purchased, the enterprise will want to keep the machinery in operation for as long as possible to get the best possible return on the investment. However, with new models and upgraded features being released every year, staying on the cutting-edge can be out of reach for many small businesses. Thankfully, by leasing the equipment, owners can trade up for new versions each year, which means these construction firms don’t need to worry about losing out on the competitive edge necessary to retain market share and seek out new customers.

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