The Rental Revolution

As economic pressures rise, construction firms are turning to more accessible methods for obtaining heavy equipment. Inflation and high interest rates make it difficult to purchase equipment outright, driving the demand for rentals.

Ivan Franklin, vice president of construction lending for Mitsubishi HC Capital America, says the demand for construction rental equipment has grown due to the increase in purchasing cost for construction machinery, rising interest rates and economic uncertainty.

“More and more contractors are shifting towards renting equipment due to the flexibility it provides,” he said. “We see the biggest surge in demand for earthmoving equipment, material handling equipment and concrete and road construction equipment.”

Financial and Business Benefits

For construction firms, renting offers several financial advantages over purchasing, including:

Financial Flexibility

Renting equipment helps companies avoid significant upfront capital needed to purchase machinery, which frees up cash for other business needs.

“Rental payments will often be lower than payments on a loan to purchase the item and will also provide a flexible term based on the current project or need for the asset,” explained Franklin. “Another cost saving is the absence of costs of warranties, insurance, transportation and storage, which will free up more cash to support business growth.”

Maintenance

“Renting eliminates the recurring costs associated with maintenance, repairs and storage of the equipment,” said Franklin.

Manage Depreciation

Equipment – especially heavy equipment and anything tech-related – depreciates over time. And, according to Franklin, an asset’s value at the end of loan payoff could be substantially less than the purchase price, making rental an attractive option for avoiding depreciation losses.

Technology

Renting equipment with newer technology can increase productivity, improve accuracy and reduce costs. Additionally, renters avoid equipment obsolescence and add more efficient machines to a fleet.

“Lower monthly payments that generally come with renting may enable you to afford better, or newer, equipment than you could obtain if buying outright,” said Franklin.

To support the rental market, Mitsubishi HC Capital America provides financing programs to help construction firms access equipment.

“Mitsubishi HC Capital America is very supportive of the rental industry and provides rental fleet financing to national and independent rental companies. Our rental finance programs can be built to the specific need of the rental fleet and can incorporate deferred or seasonal payments and flexible early buyout fees.”

End user customers can also leverage lease programs for longer rental cycles – typically 24 to 36 months.

Rental Challenges

Despite its benefits, renting has its challenges.

“Scheduling and availability of equipment can be a logistical challenge,” said Franklin. “Ensuring the right tool and piece of equipment is available when needed and coordinating rental timelines across multiple projects can lead to project delays.”

Another challenge includes handling rental agreements, terms and conditions for multiple pieces of equipment and projects. According to Franklin, this requires a skilled project manager and clear communication. Contract management is essential for contract compliance and to avoid disputes.

To ensure availability, rental companies should analyze historical data and market trends to predict future demand.

“By analyzing historical data and market trends, rental companies can predict demand periods and adjust inventory levels,” Franklin explained.

Renting vs. Buying

In some cases, buying equipment still makes more financial sense than renting. For example, if the equipment is needed for an extended period or multiple projects, buying can be more cost-effective.

“The initial investment may be high, but it eliminates ongoing rental fees,” said Franklin. “If the equipment will be used frequently and consistently, owning it can save money in the long run.”

Ownership also allows for equipment customization and potential tax benefits such as depreciation deductions and tax credits.

Rent, Lease or Buy? Questions to Ask

Before deciding, Franklin suggests firms consider the following:

Can my business support the extra capacity?

Every new equipment purchase is an investment in added capacity or capability.

“But, with that comes added responsibility. Ask yourself, can your business fully utilize the increased capacity this purchase will provide?”

How else can I use the cash instead of a major purchase?

“Cash is often seen as the most straightforward option,” said Franklin, “but is tying up large amounts of liquidity the best move for your business?”

What type of financing option makes sense for my business?

Leasing options offer flexibility, especially in industries with rapid technological advancements. Short-term leases or rental purchase options allow businesses to test new equipment and technologies without the burden of long-term ownership.

Meanwhile, Franklin says long-term leases can offer predictable, manageable costs while preserving capital for other strategic moves.

Can I purchase equipment outright without a significant burden on the business?

“While paying in full gives the business complete ownership,” Franklin noted, “consider how else you can leverage the cash to grow the business.”

The Future and Industry Innovation

As new equipment costs rise, Franklin predicts the rental demand will continue to grow.

“As new equipment becomes more expensive, organizations may not be able to make a large cash purchase to buy new equipment. As such, equipment rentals will see increased demand as a way for construction companies to access the latest equipment.”

According to Franklin, technology continues to revolutionize U.S. construction processes. The adoption of Building Information Modeling (BIM) and artificial intelligence (AI) play a key role.

“The adoption of BIM is transforming project planning and execution by utilizing digital models to streamline workflows and minimize errors. AI and machine learning are enhancing the accuracy of project scheduling and cost estimation, enabling better decision-making and resource allocation.”

Meanwhile, he says drones and robotics are playing a pivotal role in improving safety and efficiency, particularly in surveying and on-site construction tasks, ushering in a new era of innovation and productivity.

Tips for Optimizing an Equipment Strategy

To stay competitive, construction firms should leverage technology and build strategic partnerships, according to Franklin.

“Data-driven insights can improve efficiency, reduce downtime, forecast supply and demand needs and better prepare the business for strategic planning. By establishing strong relationships with reliable rental companies, equipment suppliers and finance companies, the construction firm has a deep pocket of experts it can pull in for any project when the need arises.”