Financing

Construction equipment is the most vital part to perform my construction  work. This requires financing so that the contractor can conserve his money and remain sufficiently fluid to manage his business and have cash reserves to take the advantage of contracting opportunities as they occur. 

Equipment can be financed in many ways. Some of them are as follows : 

• Most equipment suppliers make financial arrangement available to the purchaser. After the required down payment is made (usually trim 10 to 15% of the equipment cost), the balance can be paid off m monthly installments. A note and a conditional sales contract is entered between the supplier the buyer. It may be for the full amount of the purchase with a credit showing the amount of down payment, or simply the balance rating  the monthly payments, which include the principal and the interest. The supplier retains ownership of the equipment till the last payment 1s made. The interest rate is usually high, may be 50% higher than the supplier can obtain from his bank and sometimes may carry interest 011 the full value of the purchase until the entire purchase price is paid. This type of contract is very expensive and should be avoided at all costs because  it charges interest on interest. If the buyer has any reasonable credit rating he can always insist on the interest being charged on a declining balance. The supplier often will decide to discount the note with his bank. In this case the contract will usually carry simple interest a declining balance as payments are  
• Various commercial corporations finance construction  equipment. These corporations do a professional job but usually charge high interest rates, always higher than the normal bank rate. If the buyer lacks a good credit rating. they are likely to charge full interest on the original sum till the loan is paid. Although interest is an expense and c'm be taken as an Inchon deduction, the deduction is of no use unless it can be charged against a profit 
• A number of corncrakes have been formed that buy equipment anti it to the user on a term basis, and even some banks have divisions  or separate companies that make this a practice. Under certain circumstances, arrangement may be.suitable, but it lust be analysed carefully. 
• When the contractor has good bank credit and an adequate sum of money available, he may deal directly with the places an "equipment note" with the bank. A number of items are listed m the note which includes the equipment being financed and the purchase price of  item. Since the buyer is going to pay the supplier in cash, he will be able to obtain a cash discount of about 10-15% off the list of the equipment PRC. In general, banks prefer to finance about 75% of the original cost. This leaves the buyer to finance the purchase to the extent of 25% from his resources. The terms  of the loan are flexible both as to the interest and the repayment dates, the length varying with the expected life of the equipment. Heavy excavating equipment may be financed upto 4 years, heavy trucks tractors upto 3 ye:w, while trucks, compressors, concrete mixers for 2 or 2-1/2 years. Payments on the note are made monthly or quarterly. The bank is informed when the equipment is sold or involved outside the country and the bank is paid whatever amount remains unpaid.