Waste management companies that make strategic equipment financing decisions will see substantial benefits by way of a stronger bottom line.

Eric Freeman

In the waste management industry, equipment acquisition can be a costly expense—especially considering the amount of wear and tear this machinery undergoes on a regular basis.

To remain profitable and competitive, waste management companies should be knowledgeable about the strategies and practices that others in the industry are using to finance high-demand equipment in order to save costs and boost profits.

Why Now?

It’s important to note that the waste management industry creates profit in more ways than just one. Although companies are hired to physically remove waste and dispose of debris and materials, they also increase income by selling materials that have value such as copper, metals, glass and more.

Unfortunately, commodity pricing in the current market is extremely low, resulting in low revenue from material sales. This means that now more than ever, waste management companies need to manage their cash. Many in the industry are turning to new methods of equipment financing in order to save money over time.

Rising Demand For Upgraded Equipment

Beyond the challenges of material sales in today’s market, waste management companies also feel pressure to upgrade equipment frequently to remain competitive.

For example, over the last several years there has been a major shift toward using cleaner fuels, resulting in ongoing changes in waste management equipment. Trash trucks are one example of this shift, as many of these trucks are now powered by natural gas instead of gasoline.

Trash trucks are in constant demand in the waste sector, and using them in a more environmentally friendly way creates positive impact on the climate and encourages a cleaner standard within the waste management industry.

We are also seeing high demand in equipment related to recycling such as sorters, sorting facilities, shredders and balers. Items that can separate trash and waste from recyclables and move debris around the yard are becoming extremely valuable to the waste management industry due to their efficiency and ability to sort the commodities that companies rely so heavily on selling.

That said, ongoing investments in upgraded trash trucks and recycling equipment requires a proactive financing strategy in order for waste management companies to preserve cash.

How to Finance

Companies in the waste management business tend to choose equipment financing structures based on the lifespan of equipment. In general, material handling equipment wears out fairly quickly, and the waste industry requires extreme use of its machinery.

For equipment such as bulldozers and trash trucks, which have a lifespan of three to five years, an operating lease is the best structure. Operating leases allow companies to pay for equipment usage with no obligation to own it. Once the maintenance needs on this equipment begin to rise, companies can replace it with newer equipment rather than owning it and losing money trying to keep the machinery in working condition.

On the other hand, equipment such as balers or shredders are core assets for waste management companies and can last 20 to 30 years. Most waste management companies will finance these more permanent machines over a long period of time using a loan or a capital lease. Capital leases function like a purchase. These leases offer low rates and an opportunity to spread out the cost of the equipment; however at the end of the lease term, the waste management company purchases the equipment. The result is a low monthly payment over time, resulting in more cash on hand for the company.

Future Forecast

Using cash to finance a depreciating asset isn’t a financially wise decision, even for the largest waste management companies. As margins compress across the board, now is an important time to look at new ways to finance equipment.

While commodity pricing remains low and the pressure for upgraded waste management equipment increases, companies in this industry will continue to work to conserve cash.

Waste management companies that understand their options and make strategic equipment financing decisions will see substantial benefits by way of a stronger bottom line, ultimately positioning these firms for long-term financial health.

Eric Freeman is Vice President of Summit Funding Group, an Ohio-based company that provides equipment lease and finance solutions to businesses across the U.S. and Canada. Founded in 1993, Summit Funding Group has originated more than $2.5 billion in equipment lease and finance transactions to date. Eric can be reached at [email protected]. 

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