What’s Going On With Interest Rates & Equipment

2.9% for 36 months on the new skid steer. Sweet deal, am I right? Well, maybe. Minimizing interest expenses is a good idea, but if you’re like most of our clients, you think it’s a bigger deal than it is.

Here’s what we mean…

A 2.9% 36-month deal on a $60k asset would lead to a $1744/month obligation. That same finance structure at 8% interest is $1,880/month. So, when the interest rate is MORE THAN doubled, the payment impact is only $136 more monthly. 

Now, ask yourself…

Would you pass on an opportunity to grow your business for $136/month? Would you pass on replacing an asset that’s breaking down or operating poorly for $136/month? Alternatively, would you buy a new skid steer only because it’s $136/month cheaper? Would you settle for rental rates because $136/month feels too steep? (rental rates are way higher, BTW)

I would hope not. Interest rates make things cost more or less but are almost never the reason to acquire equipment or not.

Buy equipment because it’s a revenue driver or expense reducer. More importantly, and as a starting point, ask yourself if you even know how much revenue or expenses come from operating each asset. What type of return on investment (ROI) or return on asset (ROA) are you shooting for?

If you need help with insights or a model to do this, we have a Facebook group (which some of you may have come from to read this) that we invite you to join. No sales pitches, just building a community of contractors where we can all discuss and share financial best practices, tips and tools to help you become a multi-million dollar contractor.

Check out the group here and if you have any questions about developing an equipment acquisition plan or just need a smarter approach to contractor equipment financing, give us a call. Sadoff can help.

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