MARKET REPORT COMPACT PLANT


Funding the fleet


As construction activity increases, many hirers looking to increase their equipment portfolios will be considering finance options for maximum purchasing efficiency.


In the heady days just before the recession, many banks and financial institutions were keen to lend money to business customers in order to purchase the equipment they needed. Today, not surprisingly, the commercial landscape is quite different.


“Some finance providers pulled out of the market altogether and


Bomag offers flexible arrangements reflecting customers’ individual business circumstances.


others became much more reluctant to lend, especially regarding equipment they perceived as being construction industry related,” said Ian Barker of BNP Paribas Leasing Solutions, who is Director of the in-house finance operations of


Bomag, Kubota and Manitou. “Demand obviously declined from 2008-10, but we knew the market would pick up again. 2013 has been very good and there is generally more confidence than at any time since the downturn set in.”


As with any financial product, there are many different options appropriate for plant purchases, such as hire purchase (HP) with fixed or variable interest rates, contract hire, operating leases and finance leases. As every business is different, each should decide carefully which is best for its individual situation.


However, Ian Barker says that HP continues to be used by the vast majority of SME’s for machinery purchases made using finance agreements. “Customers can budget for their regular payments in a straightforward way, and they will own the equipment at the end of the agreement. The item also appears as an asset in the company’s balance sheet, as if it had been purchased. Normally, customers can also claim write-down tax allowances and capital grants, and VAT is usually reclaimable.


“Specialist finance providers understand the manufacturers’ equipment and aspects like its residual value, giving significant


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advantages. Bomag, for example, offers ‘intelligent finance’ based on the longevity of its compaction products. It advocates a five year (60 month) HP scheme that significantly lowers the weekly repayment costs for a given model and fits with the lower working hours of tandem rollers, and their higher residual value.


“We can offer a range of options to match customers’ needs, based on their cash flow, hire rates and so on, and we can be flexible. Some people automatically ask for quotes over three years, but perhaps four years or, say, 44 or 53 month terms would suit them better, with a choice of deposit options. We can also tailor repayment schedules with ‘holidays’ in certain months when income is likely to decrease.”


Rising confidence


Following the rise in confidence and greater demand for its equipment, Takeuchi established Takeuchi Finance a year ago, in partnership with De Lage Landen Leasing (DLL). The manufacturer had previously offered finance through a conventional broker, but decided to provide tailored finance solutions to customers at the point of sale. “We have been busy throughout 2013 as the market has really picked up,” said DLL Senior Account Manager, Nick Levey. “Hirers are not just replacing old equipment, but are also increasing their fleets. More social housing projects are being started, government funded infrastructure projects are getting under way, and the signs for 2014 are very


encouraging.


“Procuring construction machinery under HP agreements through finance


Takeuchi Finance reports that demand has picked up significantly this year.


companies has always been popular, and the machinery lends itself to such arrangements , being relatively high-cost, typically kept for three to five years, and, with good quality brands, the residual value will be high at the end of the period. There has recently been a little more interest in operating leases (where the finance company buys


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