Lease, Rent or Buy Your Forklift: What to Consider
Forklifts are expensive pieces of equipment. Take the time to consider the options and make the best choice for your business. Here are some points to consider.
Rental and leasing are somewhat similar. In the case of renting, the term is shorter, typically a few weeks or months. Renting makes sense when you have a seasonal peak business period, and you need to move extra freight. It can also provide an opportunity for experimentation. Sometimes, a facility manager will rent a different class of forklift or an alternative model in order to see if it will increase productivity. Rentals are typically expensive compared to lease or purchase options. This is because the rental also includes the cost of maintenance. The rental fee charged by the dealer must also cover the time that the forklift sits idle at the dealership between rental assignments.
The cost of leasing can depend on a number of variables, including the cost of the machine. According to one expert, you can expect to pay about $600 per month to lease a forklift with a value of $25,000, or in the vicinity of $1,100 per month for a $50,000 machine. Expect to outlay an additional fee for maintenance. Monthly leasing payments can vary depending upon the circumstances.
Forklift Leasing Versus Purchase
The advantages of leasing include the following points:
- Tax Advantages: In most states, leasing is a tax-deductible operational expense, but be sure to check applicable state or provincial tax rules.
- Stay Current With Technology: Leasing allows for equipment replacement at a regular interval. The timely replacement of forklifts with newer models allows an operation to enjoy the productivity and safety benefits associated with new technologies.
- Test New Models: By utilizing a leasing program, operators can test new equipment without having to commit to buying it. After the term of the lease, the decision can be made whether to return the machine or purchase it.
- Budgeted Maintenance: The cost of forklift maintenance can be included as part of the monthly lease price. A benefit of purchasing a maintenance package is that it becomes a predictable monthly charge which facilitates accurate budgeting.
- Lower Initial Costs: Operators can benefit from the performance of an expensive machine without having to pay the complete cost of buying it. Because the lease runs for three to five years, the monthly lease and maintenance cost more closely match with forklift usage, rather than paying up front for new machines.
- Improved Productivity: The more frequent replacement schedule helps keep down the average age of your fleet, increasing the likelihood of peak efficiency and a reduction of downtime.
Negatives of Leasing
- The Cost Is Higher Than If You Buy: If you decide to exercise your option to buy a forklift at the end of the term, it will end up costing more in total than initially purchasing the machine at the onset. As one expert explains it, "You are paying a premium (like an insurance policy) for the option of sending it back with no obligation. The dealer is taking on that risk."
- There Are Penalties for Overuse: The lease will typically specify the allowable hours of usage. If the maximum amount is exceeded in such an agreement, there will be a penalty. The penalty may be waived if you decide to stay with the same dealer on the subsequent lease.
- No Asset to Borrow Against: When a company chooses to lease, they do not have an asset to use as security, because the dealer maintains ownership.
- The Possibility of Poor Maintenance Service By the Leasing Company: Experts stress the importance of clarifying service details before signing a maintenance agreement. As a precaution, take the time to investigate the supplier's reputation and capabilities. As for references. If there are doubts about service, there may be a case for including an extra machine in the contract to cover unintended downtime.
Buying a Forklift
Buying a forklift might be the best course of action if:
- your company has a preference for owning all its capital equipment
- you have access to a competitive line of credit
- your business is stable and you anticipate using the forklift for 20 years
- you have the cash on hand to make the purchase, or you need the asset on your books as capital equipment
Each company looks at the lease-buy decision through their unique lens. Rental continues to provide a useful short-term solution to seasonal peaks. From the standpoint of trends, however, most larger companies are now leasing forklifts rather than buying them. Offering budgeting stability and a steady influx of new equipment, leasing seems to tick the boxes. And given the rapid rate of change in supply chain operations today, leasing provides greater flexibility.