IRVINE, CA—Rising construction costs arecreating financial concerns for commercial builders who want tostay current with their equipment without going into undue debt.GlobeSt.com spoke with Eric Freeman, VP ofSummit Funding Group here, about how commercial builders can finance the heavyequipment they need for their construction operations whilemaintaining financial stability.

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GlobeSt.com: With construction costs continuing torise for commercial builders, what options do constructioncompanies have in order to obtain the heavy equipment they need fortheir operations?

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Freeman: Leasingheavy equipment, instead of a traditional purchase, can be one ofthe best options available for construction companies today.

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Currently, there are extremely attractive terms for leasingequipment, including 100% financing and no moneydown. Many equipment lessors area also offering lessees the addedbonus of deferring their payments up to 90 days. This option canallow a construction company to start a job and create cash flowbefore their first payment is even due.

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Leasing equipment instead of purchasing also allows companies tobetter manage their fleet. For example, many companies purchaseequipment for a specific job. Then, when the job is complete, thecompany no longer needs the equipment. If the equipment waspurchased, the company is stuck and must try to sell the equipmentto get it off their books. Alternatively, when leasing, a companycan simply hand equipment back after the job is done and doesn'thave to deal with aging equipment they do not need. If the companyprefers to keep the equipment, there are also competitive purchaseoptions on most leases, allowing them to do so.

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In addition to attractive terms and improved fleet management,leasing equipment can also keep additional debt off of a company'sbalance sheet. This can allow companies to maintain their bondingand take on additional contracts, ultimately resulting inadditional revenue.

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GlobeSt.com: As an equipment finance expert, whatemerging trends do you and your firm expect to see with regard tothe finance of construction equipment in the comingyear?

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Freeman: With strong rates and termsavailable in the current market, as well as the overall advantageswith leasing, it's really no surprise that the largest trend weforecast for 2015 is an increase in heavy-equipment leasing vs.purchasing. The recession was and is a strong factor in theformation of this trend. Many companies began to move from buyingto leasing during the downturn. In addition, a number of companiesthat had purchased equipment before the recession found themselvesstuck trying to sell large pieces of equipment at a time whenconstruction was at a standstill. The result for most of thesecompanies was greater financial loss.

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Today, construction companies are keenly aware of these risksand want to be prepared in case the economy slows again. Thesecompanies understand that construction firms need to maintain abalance of both leased and owned equipment, and that keeping someequipment off their books is the safest way to protect againstfinancial loss. For this reason, equipment leasing in this industrywill increase in 2015.

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GlobeSt.com: What challenges areconstruction-company owners facing when seekingfinancing?

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Freeman: One of the biggest challengesin achieving financing for equipment today is increased lendingregulations, which are also a result of the recent recession. As weall know, in order to avoid another crash, the Dodd-FrankWall Street Reform and Consumer Protection Act was putinto place in 2010. This act significantly changed the rules forlending and ultimately increased lending regulations. As a result,finance providers today have tightened their underwriting standardsand are unable to lend as much money for equipment as theypreviously did.

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To combat this issue and secure the equipment needed,construction companies need to find a finance partner thatspecializes in equipment finance. These financial solutionsproviders are not subject to the same restrictions traditionalbanks are. For example, at Summit, we can general provide clientswith larger loans as well as loans on more-specialized equipment,simply because we make our own finance decisions. Constructioncompanies that partner with firms that are less restricted willhave access to increased borrowing power.

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Stay tuned for more of our interview with Eric Freeman,where he discusses ways for construction companies to remaincompetitive when seeking equipment financing and other trends inthis field.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.