Heavy equipment financing permits you to get a bank loan or lease to buy construction equipment for your business. This makes it more convenient to have equipment without purchasing the equipment outright. The construction equipment that is bought with the loan acts as collateral for the loan. Heavy-duty construction equipment that can be financed includes forklifts, bulldozers, excavators, engineering equipment, and tractors.

Although you may have the funds to purchase the construction equipment you need, it is best to opt for heavy construction equipment financing. This will allow you to devote your cash flow to more important networks. This article features six tips for financing heavy equipment for your construction business.

Loan for Your Equipment

If you decide to take out a loan for your equipment, the equipment will automatically be yours upon purchase. Your equipment can also be used for equity once you pay up your loan. This is beneficial if you need to buy additional pieces of equipment. Another option is to utilize a lease back agreement. In this case, the loan company is able to acquire the equipment, once the lease is up.

It is much easier to take out an equipment loan than a small business loan. This is because the regulations aren’t as risky. Plus, various factors are taken into account, which includes your experience with using the equipment. There are tax advantages associated with financing using an equipment loan. For example, it can be used as a tax write off.

Keep in mind that you must have a down payment when you get an equipment loan. However, you can avoid a large down payment if you have a number of assets. Your assets can be used as collateral and, in this case, you wouldn’t be required to pay a down payment. The only downside is that if you don’t make timely payments on your loan, your property will be seized and resold, to pay off the loan.

Lease the Equipment

Leasing equipment will significantly save you a great deal of money. Additionally, you will get the latest equipment. Since it isn’t a loan, your monthly payments will be reduced. You will also not be required to pay a down payment for the equipment.

Leasing offers plenty of flexible benefits. For instance, you will be able to negotiate the terms of the lease. If you decide that you want to end the lease agreement and would rather keep the equipment, that option is available. Additionally, you will be able to outright purchase it at a discounted price. Unfortunately, there is a termination fee, but you won’t have to continue to make payments. Also, the interest rates will be a bit higher than an equipment loan. Plus, you will not be able to build equity since there aren’t loan payments. However, another benefit of leasing is that it is tax deductible.

Qualifying for a Heavy Equipment Loan

The amount of the loan is dependent on the type of equipment you want to purchase. So, it isn’t just based solely on your business credit score or revenue. Keep in mind that every loan company is different. However, if you have a great cash flow and good credit, you should have no problem with qualifying for a loan with good rates. If you happen to have poor cash flow or a not-so-good credit score, you can always offer a down payment for the heavy equipment.

Interest Rates

The interest rate of the loan depends on your business experience, credit score, and equipment type. It also depends on whether you pay a down payment. If the equipment isn’t very expensive, you may still have to pay high interest rates. However, more expensive equipment tends to have lower interest rates. Depending on the loan company, interest rates are usually between 8% and 30%.

Term Lengths

The length of your loan should coincide with the equipment’s life expectancy. For example, if the lifespan of an equipment is 50,000 hours before repair is needed, it is wise to have a term length of four years or less. However, it all depends on how often you use the equipment each week. In most cases, the terms of the loan will not exceed the life of the equipment.

Timing of Loan Financing

Fortunately, the equipment loan underwriting process isn’t as rigid compared to unsecured loans. Most of the time, you will receive financing in a matter of two business days. Online lenders tend to finance loans quicker than financing through a bank.

Once the equipment is financed, the next step is contacting the vendor. The vendor is the company that has the equipment and, therefore, determines how long it will take before you receive the equipment. Be sure to have the invoice from the vendor. This will speed up the process so that you are able to get the equipment in a timely manner.