When I attended the Glamping Show USA in Aurora, Colo., in October 2022 and the National Association of RV Parks and Campgrounds’ Outdoor Hospitality Conference & Expo in Raleigh, N.C., in November 2022, I visited with many exhibitors selling park model RVs and glamping structures. The main benefits of these investments as presented by the various manufacturers are to broaden the appeal of your RV park to include families who do not own a travel trailer, fifth-wheel or RV who want to enjoy the glamping experience and to increase your rental income.
The purchase prices per unit ranged from $10,000 up to $60,000 depending on the structure chosen, not including the cost to prepare the pad. The good news is the potential rental income derived from these investments is significantly greater than the rental income derived from pull-through and back-in RV sites and campsites.
When seeking to make capital improvements to your RV park and campground, a financing option available and often overlooked is equipment leasing and equipment financing agreements (EFA). RV park and campground owners can finance the purchase of vehicles, park model RVs, glamping structures, IT infrastructure, water features, maintenance equipment, golf carts, computer hardware & software, outdoor signage and any other tangible items needed to operate your business using an equipment lease or an EFA.
There are several important differences between financing using an equipment lease and an EFA.
- One major difference is the leasing company will own the equipment when financing using an equipment lease and the borrower will own the equipment at the end of the lease term. Alternatively, when the equipment is being financed using an EFA, the equipment is always owned by the borrower.
- When leasing, the borrower reports the lease payment as an expense on their tax return. When financing using an EFA, the interest is reported as an expense and the equipment is depreciated over its estimated useful life.
- Finally, when financing using a lease, the sales and property taxes are billed to the leasing company and passed through to the borrower as an additional expense. When the equipment is financed using an EFA, all taxes are billed directly to the RV park and campground owner.
The following is a list of four (4) key benefits of equipment financing to your RV park and campground:
Conserve and Control Cash. Equipment leasing and an EFA will preserve your working capital which can be used alternatively for day-to-day and unexpected business expenses and business expansions. In addition to saving your working capital, a lease provides a pre-determined monthly line item, which can help you budget more effectively. With predictable monthly expenses, you can develop long-term plans for your business with confidence and get the equipment you need, while keeping your working capital available for other expenditures. If you require a substantial amount of equipment, why tie up a large amount of cash especially when you could use that same money to grow your business in other ways?
Upgrade Outdated Equipment. Equipment financing can help you stay on top of the latest advances in equipment and technology available. Most travelers have smartphones and laptops to stay connected with family and friends and for entertainment options that require good internet and/or cell service when staying at your RV park. As a frequent traveler, it is frustrating to stay in RV parks with poor connectivity. I personally believe that investing in an IT system is a wise choice and will enhance the chances of first-time campers becoming repeat customers.
Tax Benefits. Equipment leasing allows your business the tax benefits of a full deduction of the lease payments to lower your taxable income. Section 179 of the IRS tax code allows business owners to accelerate the depreciation and deduct up to $1 million. Click here for more details. I recommend you check with your tax advisor to determine the tax benefits for your business of leasing as compared to paying for the equipment in full from your liquid assets.
More Attractive Balance Sheet. Monthly lease payments are viewed as a business expense instead of long-term debt. Reporting less debt on your balance sheet will improve your chances to secure additional business financing if needed. Most leases in the RV park and campground industry are capital leases, so the equipment will be owned by the business at the end of the lease term. Once the lease is repaid, you then can report the asset at its current, depreciated value on your balance sheet. Alternatively, if you finance using an EFA, both the asset and liability are reported on your balance sheet.
The typical lease and EFA for a start-up business will require a 20% down payment and the repayment term will be 36 months. The typical terms of an equipment lease and an EFA for an existing company will require a down payment ranging from one (1) lease payment up to 20% of the amount financed. Documentation fees will range from $95 to $495 and repayment terms typically range from twelve (12) months up to seventy-two (72) months. In the case of an equipment lease, the buyout can range from $1 up to 10% of the purchase price. All owner(s) with more than 20% equity in the business will be required to personally guarantee the equipment lease and EFA. The good news is that the equipment is the only collateral required, so this transaction is compatible with and has no impact on your existing mortgage.
For more information, visit www.businessfinancedepot.com. There is a two-part video series available on YouTube that tackles these issues, click on this link to watch the video about equipment leasing.
If you have any additional questions and information, reach me by email at [email protected] or by calling 800-788-3884.
Paul Bosley is a Managing Member of the Business Finance Depot (www.businessfinancedepot.com)
Published in Woodall’s Campground Magazine in January 2022.
