Access to modern, reliable equipment is critical to maintaining productivity and staying competitive. However, the high upfront cost of purchasing heavy machinery can significantly impact a company’s cash flow and limit its ability to invest in other high-growth opportunities. Innovative technology is often expensive, making it difficult for many construction businesses to purchase items outright.
The steepest drop in construction equipment value occurs in the first few years. For example, a crawler excavator might depreciate by 30 percent in the first three years and another 20 percent between years three and seven. As the excavator loses more than half its value, it also gains wear and tear. Meanwhile, newer models are introduced, but the ability to upgrade requires flexibility.
While a handful of financing models are available, fair market value (FMV) leasing allows business owners to acquire the equipment they need without tying up large sums of capital. Through an FMV lease, customers pay to use the equipment over a set term with the option to purchase the equipment at its fair market value, return it, or upgrade to a newer model at the end of the term.
Fair market value leasing is especially beneficial in industries like construction where technology constantly evolves and older equipment quickly depreciates or becomes obsolete. Because the customer doesn’t own the asset in an FMV lease, they benefit from not having a long-term commitment or risk of falling behind due to outdated technology.
The construction industry is known for its cyclical nature and sensitivity to economic fluctuations, including tariffs. When international trade policies shift and tariffs increase, the price of imported construction machinery can surge, placing additional strain on capital budgets. FMV leasing helps mitigate this impact by spreading costs over time. Instead of absorbing the full brunt of tariff-inflated purchase prices, companies can lease equipment at a predictable monthly rate, preserving cash flow and maintaining access to essential machinery without compromising financial stability.
| Your local Wirtgen America dealer |
|---|
| Dobbs Equipment (DXC) |
Additionally, as environmental regulations become more stringent, construction companies are increasingly required to adopt greener technologies. FMV leasing can facilitate access to eco-friendly equipment, helping companies meet regulatory requirements and contribute to sustainability goals.
Another significant advantage of FMV leasing is its positive impact on a business’s financial statements. Because FMV leases are typically presented as operating leases, they often do not appear as liabilities on balance sheets in the same way that loans or capital leases do. This preserves borrowing capacity for other strategic investments and creates access to low-risk, cost-effective financing for mission-critical equipment.
FMV leasing can also include maintenance and service packages that cover routine maintenance, repairs, and even insurance, reducing administrative burdens and ensuring that the equipment remains in optimal condition. This can lead to fewer breakdowns, less downtime, and more efficient project completion.
Consider the example of a mid-sized construction company that wins a contract requiring specialized equipment like high-capacity cranes and GPS-enabled bulldozers. Purchasing this equipment outright would cost over $2 million — an amount that would severely strain the company’s cash flow and delay other planned investments, such as hiring skilled labor or upgrading project management software.
| Your local Bomag Americas dealer |
|---|
| Linder Industrial Machinery |
Instead, the company chooses an FMV lease for the equipment. This allows them to:
- Access the latest technology without the full upfront cost.
- Preserve working capital for other operational needs.
- Include maintenance and service packages in the lease, reducing downtime and repair costs.
By the end of the project, the company returns the equipment and leases newer models for their next job, avoiding depreciation losses and staying agile in a fast-paced industry.
For many companies, FMV leasing offers flexibility, financial efficiency, and access to the latest technology. By opting for FMV leasing, construction companies can maintain their competitive edge, adapt to changing market conditions, and ensure long-term success.
James Elwood is Senior Vice President — Strategic Development of the Construction Division at Mitsubishi HC Capital America.
