Forklift Financing Options and Their Advantages

January 17, 2023 - Last modified: January 10, 2023 @ 5:43 pm

Every business needs the right equipment to run well. In many industrial spaces, that means getting forklifts that you can rely on to complete important tasks day in and day out. Any business owner who has looked into getting a forklift realizes it takes a big investment to get what you need. That's where forklift financing options come into play.

Understanding Forklift Financing Options

If you've had sticker shock when looking at the costs of purchasing a forklift, you're not alone. Many business owners have had a tough time swallowing the price tag that comes along with a quality forklift. Used models for the more basic types start well into the thousands. New models for specialty models can easily exceed six figures.

The good news is that you don't have to front the entire cost all at once. There are different forklift financing options that can ease the budget crunch. By using the right option for your situation and getting a great price on your machine, you can get the most out of your money.

There are typically five different ways to finance your next forklift. The right option for your business will depend on your long-term plans and goals.

Retail Installment Loan

The first option to consider is a retail installment loan. This is very similar to the traditional type of lending most people are familiar with. You apply for a loan of a certain amount from your bank or credit union. They issue the funds to cover the cost, and you repay the borrowed money in installments until the terms of the loan are fulfilled.

This type of forklift financing offers a big advantage because you will gain a long-term asset. Once you finish paying off the loan, the forklift is yours forever. You can keep using it for as long as it runs or sell it when you are ready to upgrade. That makes the forklift an even better investment and a way to keep funds flexible into the future.

Depending on how you structure the loan, you could also secure ownership at the beginning. Say you get a loan for $10,000 and immediate access to the funds. You can buy the forklift outright and make payments to the bank. Your asset and your payments may not be specifically connected the way they are in a lease.

While ownership of the forklift can be an advantage, it can also be a drawback. If you purchase a used forklift that already has a shortened lifespan when you get it, you run the risk of fully owning an item that loses its value sooner than you planned. You also want to make sure the forklift will last for at least the term of the financing. The last thing you want is a bill for an item you aren't using.

Master Credit Line

More established businesses may be able to use a master credit line for their forklift financing. In this setup, your company creates a relationship with a financial institution that will issue you a line of credit. Those funds can be used as needed to purchase new equipment, giving you the flexibility of being able to get the tools you need whenever you need them.

By using a credit line, you only have to apply for the funds once, and then they are available when you need them. This creates less hassle than getting a new loan each time you want to buy a forklift. You still get the advantage of owning the forklift outright but being able to pay for the ultimate cost in stages rather than trying to raise capital upfront.

You can also use master credit lines for leasing programs. Your company will enter a leasing agreement for one or more forklifts at the beginning of this deal. As you need to get more forklifts, you can add new units to the leasing agreement under the same initial terms. Businesses that are trying to get a fleet of forklifts might find this option helpful.

As with the installment loan method of forklift financing, you need to choose carefully as you pick your units. You may end up owning them for a long time, so you want them to perform well as long as possible. Shop around and compare models to find the right ones that will be worth owning for years to come.

Operating Lease

Another option for forklift financing is an operating lease. As you may have guessed from the term "lease," you don't truly own the forklift in this situation. This is one of the most common ways for businesses to acquire a forklift, though it may not be right for everyone.

With an operating lease, another company or institution owns the forklift and you pay a monthly cost to use the unit for a set period of time. You are responsible for maintenance and repairs during this time, but at the end of the leasing period you can give the unit back to the lessor. Some companies may offer maintenance as a part of the lease terms for an additional fee.

Operating leases are tempting because the monthly cost is typically less than financing the purchase of a forklift, and many businesses don't have access to credit lines that allow for major purchases. The downside is that you may be subject to more rules about the use of the forklift.

Some leases come with restrictions on operating hours and conditions as a part of the forklift financing agreement. The owner of the forklift likely hopes to be able to lease the unit again or sell it after your leasing term ends. You need to consider whether these limitations are something you can adhere to.

For instance, a lease might restrict you to 2,000 working hours for that forklift per year. This may be fine if you don't do extensive work with the lift truck. However, if you have an uptick in business or work, you don't want to have to worry about whether you get to use your forklift to its full extent. Going past the limit or getting a higher limit may result in a higher monthly cost.

Capital Lease

For a middle ground between purchasing and leasing, consider a capital lease as your forklift financing option. Much like an operating lease, you make monthly payments to another company for use of the forklift during a certain period of time. The difference is what happens at the end of that period of time.

At the end of an operating lease, you have to choose whether to renew your lease, turn in the forklift or pay more to the company to buy the forklift. Capital leases are more like lease-to-own programs. They are designed for you to buy the forklift at the end of the lease without a huge extra payment in addition to the lease payments you've already made.

Most companies that utilize capital leases are looking more to long-term goals and plans, and this forklift financing option supports that. You know your monthly costs and you are working towards securing a long-term asset for yourself. There are also fewer usage restrictions for the forklift. The company that issues the lease is less concerned with how you care for the unit since it will be yours eventually.

You will need to consider a big upfront cost with a capital lease because of taxes. Since the plan will be for you to own the forklift, the sales tax associated with the unit may be due at the time of the lease signing. That can be several hundred or even thousands of dollars depending on the cost of your forklift.

There is usually just a nominal payment due at the end of the lease. A payment of $1 or some other agreed-upon amount will be paid just to secure the sale of the forklift. After that, the forklift is yours to use and care for or dispose of as you see fit.

Flexible Term Lease

For a combination of flexibility and long-term planning, some companies offer flexible term leases. In some ways, this is similar to other leases. Another party owns the forklift and you pay for the right to use it. There may still be usage limits and restrictions to ensure that the forklift stays in good condition so the owner can lease it out or sell it to someone when you are finished.

What's different about this type of lease is your ability to renew at the end of the set time period. When you start your first lease, you can also lock in terms for future leasing deals. This allows you to have the option to keep renewing at the terms you have without fighting for new forklift financing deals each time. You will still have the option not to renew, so you can make the best choice for your business.

While there is added flexibility in this type of lease, it will still leave you without complete control and ownership of your equipment. You may not be able to use the machine as much as you want or how you want. You will also have to decide if you want to eventually make the investment into getting a forklift for your company to own.

Picking the Right Forklift Financing Plan

With so many options, how can you make sure you're getting the best use of your money while making the right choices for your business? It depends on how your business operates and your long-term plans.

Working Conditions

Evaluate your working conditions and how you will use a forklift. This is an important step in deciding whether you should buy a forklift or try to lease one. If you deal with rougher work conditions and need to put your forklift through its paces, you may want to avoid most leases. As mentioned, they can come with restrictions on how you use the equipment.

You will also want to come up with an estimate of how many working hours you'll need from your forklift each year. You don't want to feel pressured by the operating limits that come with some forklift financing plans. Again, it may be better to purchase the unit so you have complete control.

Long-Term Needs

Next, think about how long you may need a forklift at your disposal. When you lease, you pick a set number of years that you get to make use of that forklift. If you predict that your operations will only need a forklift for that amount of time, this could work well. However, if you plan to grow and do more work that involves forklifts, it may make more sense to own your machine.

Upgrades

You should also consider if you are going to want to upgrade to new technologies or forklift types every few years. The industry is always innovating, and every year you will find new models that are more efficient and have more features and longer lifespans. You may also find yourself needing to get a different style of forklift as your business changes.

Most organizations will be fine using a forklift that's a few years out of date. However, if you use forklift financing to get a model that is too old, you may tie your money up in an item that isn't going to be a good value for very long. Leasing can help you switch to better models sooner, although you aren't making the best investment since you are paying for an item that you may never own, depending on the type of lease.

Get the Machine You Need With Forklift Financing

Investing in equipment for your business is a serious undertaking, but the right forklift financing can make it less daunting. Start by evaluating your company's needs and plans as well as your financial situation. Using these factors, you can choose the best method to get your forklift. To get a quote so you can start planning for your new forklift, check out the financing options from Forklift Inventory.

Find New & Used Forklifts For Sale

Sources:

• https://www.toyotaforklift.com/blog/knowing-the-difference-between-a-close-end-lease-and-an-open-end-lease
• https://www.toyotaforklift.com/blog/the-five-forklift-financing-options-and-their-advantages
• https://www.toyotaforklift.com/blog/why-forklift-leasing-can-relieve-diminishing-return-burdens
• https://toyotaliftne.com/blog/how-long-will-a-forklift-last/