What is heavy equipment financing?
Heavy equipment financing is any form of business financing that allows you to purchase a product outright without having to front the entire cost of the item.
When do you need funding for your equipment needs?
If you can justify investing in equipment but don’t have the cash to purchase it, equipment financing may be needed. There’s also the case that you have the cash for equipment but investing it will deplete cash flow and reserves. Equipment funding allows a business to obtain equipment, machinery, and/or vehicles at a fixed rate for a fixed period of time. By financing equipment with an equipment loan, the business can hold on to more of its working capital and use it to cover other day-to-day expenses like rent, utilities, and payroll.
Do banks do equipment loans?
Yes, some banks can offer equipment loans. However, some banks may refuse to do equipment loans because they do not contain the capacity to repossess heavy equipment and machinery if the borrower should happen to default. Because of this, it may be better to find banks and online lenders who specialize in heavy equipment financing. Additionally, the Small Business Administration offers equipment loans to businesses that qualify. SBA equipment loans can be for amounts of up to $5,000,000 spread out over 20 years.
Banks and online lenders that specialize in equipment loans may not offer loans of up to $5,000,000. Instead, non-SBA sources of financing may have a maximum equipment loan amount closer to $500,000 or $250,000 depending on the lender.
Where to find heavy equipment financing options
There are a few different places you can look to get financing for your heavy equipment purchase.
Online business lenders
There are online lenders that specialize in heavy equipment financing. These lenders will usually have competitive rates and terms, so it's worth getting quotes from a few of them before making a decision.
SBA 504
The Small Business Administration 504 loan program is designed to provide financing for the purchase of fixed assets, such major equipment, with long-term repayment options. This program is typically used by small businesses that are expanding their operations or upgrading their facilities. The 504 program offers a variety of benefits, including low down payments, fixed interest rates, and long-term repayment terms. In addition, the SBA provides 90% guarantee for 504 loans, meaning that lenders are often willing to offer favorable terms to borrowers.
How do we choose the best heavy equipment financing company?
First you should determine what equipment you need and how much you need to borrow. Next, work on finding a loan that meets your needs and is cost-effective. In some cases the manufacturer can offer financing which may be worth exploring. Be sure to do some research and compare offers when possible. To shop and compare real business loan offers with no credit impact, visit PrimeRates. Within a few minutes you can compare offers and various types of loans. Perhaps one of the offers is exactly what you’re looking for or perhaps the information allows you to identify the right offer, either way, it’s a smart investment of time.
Why are heavy equipment financing rates better than cash?
Often equipment financing rates can be much lower than other types of business financing because the equipment being purchased acts as collateral for the loan. Because of the lower risk involved, lenders may be more willing to offer financing with the lowest possible rates, especially if you have a sizable down payment and a good credit history.
But why would that be better than cash?
Cash is by far always the cheapest option when it comes to purchasing anything. However, there are many reasons why paying cash may not be in the best interest of your business. Paying cash can place a large restriction on your cash flow as well as cause irregularities in your monthly budgeting. By financing a large piece of equipment with an equipment loan, you can obtain the equipment you need at a fixed rate over a fixed period of time with monthly payments that never change. It’s much easier to budget for monthly payments than it is to spend over $100k in a single month.
How does heavy equipment financing work?
You’ll apply for heavy equipment financing like you would for any other standard or online business loan. With this form of financing, the equipment purchase functions as the collateral for the loan. However, a standard business loan can also help you finance your equipment purchase as well.
What qualifies as heavy equipment?
There are many types of heavy equipment. The following are some examples of types of heavy equipment you may need to finance.
Asphalt pavers
Asphalt pavers are a type of paving material typically used for roads, driveways, and parking lots. These pavers are made of tightly compacted aggregate that is bonded together with a bitumen or tar-like binder.
Cranes
Cranes use a system of pulleys and cables to hoist heavy loads, making them ideal for lifting materials like steel beams and concrete slabs.
Forklifts
Forklifts are another common type of construction equipment. Unlike cranes, forklifts are designed to move goods horizontally rather than vertically. They typically have a set of forks at the front that can be used to pick up pallets and other large objects.
Bulldozers
Bulldozers are heavy-duty machines that are used to move earth and other materials. They are equipped with a large blade at the front that can be raised or lowered to push or scrape material.
Trailers
Trailers are another important type of construction equipment. They can be towed behind a truck or other vehicle and are used to transport materials from one job site to another.
Generator sets
Generator sets are large, often mobile engines that can be used to provide power for operations in remote areas or in emergency situations.
Log Skidders
Log skidders are specialized tractors used in the forestry industry to safely pull felled trees from the forest floor.
Impact crushers
Impact crushers are heavy-duty machines that use high-speed rotors and powerful hammers to reduce rocks, concrete, or other materials into small pieces.
Concrete equipment
Concrete equipment is used primarily for the production and transport of concrete, typically in large construction projects.
Farm equipment
Farm equipment covers everything from tractors and harvesters to seeding and spraying machinery.
Wash plants
Wash plants are specialized pieces of mining equipment that are used to separate mineral-rich ore from the surrounding rock and soil. Usually consisting of high-powered pumps and sluice boxes, wash plants can be used to sort through large piles of sediment in order to extract valuable minerals like gold and silver.
Excavator dragline
Excavator draglines are one of the largest mobile machines on the planet. They are used in a variety of applications, including mining, construction, and demolition.
Container handler
Container handlers are another type of mobile machine that is used for loading and unloading shipping containers.
What are the finance terms used for equipment?
Equipment financing can come with loan terms anywhere from 6 months to 10 years depending on the type of equipment and overall cost. However, lenders typically do not allow equipment loans with terms that are longer than the expected life of the equipment being purchased. When it comes to interest rates, equipment loan rates can be as low as 4% and as high as 30%. It really all depends on how much you need to borrow, who you’re borrowing from, and what you qualify for.
Who is eligible for equipment financing?
Equipment financing is typically reserved for business owners who are looking to finance a large piece of equipment, expensive machinery, or company vehicles. The equipment, machinery, or vehicle being purchased with the loan is then used as collateral to secure the loan. Because of this, some lenders may be willing to work with business owners who have a fair credit score, however, it’s better to have a good or excellent credit score to be found eligible for equipment financing.
Aside from having a decent credit score, lenders are going to take a look at your business and determine if your monthly revenue is sufficient enough to cover the monthly payments. If you are just starting out and you need the equipment to get your business off the ground and running, a lender may consider your personal income in combination with any business revenue you may be generating.
Last, the business owners who are going to be the most eligible for equipment financing are the ones who have already had their business operational for 1 year or more. That does not mean you cannot obtain equipment financing for your startup, it just means that lenders may look a bit harder at your credit history, revenue, and personal income if you lack business experience.
How long can you finance heavy equipment?
You will normally repay the cost of the heavy equipment over its projected lifetime, or the time until the item is no longer useful. With some lenders, you might have to repay everything within just 12 months, while others offer repayment periods as long as 10 years.
What kind of interest rate can you get to finance heavy equipment?
As of December 2022, interest rates on heavy equipment financing can be as low as 4.99% and as high as 30%, depending on the lender and the type of equipment being purchased. Additionally, interest rates for equipment loans can be determined by your credit history, the amount of revenue and personal income you generate, and the amount of existing debt you already have. Having a sizeable down payment can help to lower the interest rate a bit as well.
Are there any tax benefits to heavy equipment financing?
There are several tax benefits for heavy equipment financing. These include Section 179, which gives businesses the ability to deduct the full cost of the equipment by up to $1 million in the first year that it was purchased.
Borrowers can also write off lease payments and loan interest as business expenses on their tax returns, while another option allows business owners to depreciate the construction equipment every year in exchange for a small tax deduction.
How do you qualify for heavy equipment loans?
Qualifying for heavy equipment loans can be a little easier than qualifying for other types of business financing. The main reason for this is that most lenders require that the equipment being purchased is used as collateral to secure the loan. Secured loans are seen as less risky to lenders and therefore a lender may allow a business owner with less-than-perfect credit to obtain a heavy equipment loan.
If you have more than one year of business experience and can demonstrate a healthy revenue stream, then some lenders may be willing to work with a business owner with a credit score as low as 600. That being said, there are still plenty of lenders that will want to see a credit score as high as 660 or more, no matter how many years you have been in business.
Is it hard to get heavy equipment financing?
At first glance, it might seem that getting heavy equipment financing would be a simple process.
After all, many lenders will readily approve loans for large, expensive purchases like cars or houses. However, the reality is that heavy equipment such as forklifts and construction gear can pose unique challenges for lenders. The fact that these items are often used for commercial purposes often makes them riskier to finance than personal items like cars.
Additionally, the nature of the goods being financed means that there are typically few comparable options to be benchmarked against when assessing value. As a result, getting heavy equipment financing can sometimes be quite challenging, requiring extensive paperwork and credit checks in order to overcome lender skepticism about lending to businesses in this sector.
How many years can you finance heavy equipment?
The length of a financing term will depend on several different factors, including the cost of the equipment, your credit history and eligibility, and the potential resale value of the equipment at the end of your financing term. Additionally, some lenders may focus more on one factor than another when determining lending terms, while others may take a more flexible or holistic approach.
Should I lease or finance heavy equipment?
There are advantages and disadvantages to both leasing and financing equipment. When you lease equipment, you have much more flexibility and can return the equipment at any time. You can rent the equipment by the day, week, or month, depending on your needs. Also, equipment leasing makes more sense if your need for a particular piece of equipment or machinery is only temporary.
Heavy equipment financing is a much better option if the equipment or machinery is essential to the operation of your business. Also, with equipment financing, you will own a piece of equipment that can eventually be used as an asset if you have paid off the equipment loan and you are looking to acquire any future financing.
Benefits of financing heavy equipment
There are many reasons why you might want to finance the purchase of heavy equipment.
For businesses that rely on this type of machinery, it can be an essential part of maintaining a competitive edge.
Financing can also help businesses to free up cash flow and preserve working capital. And for companies that are expanding or upgrading their fleet, financing can be a convenient and cost-effective way to get the equipment they need.
There are a number of different financing options available, so it's important to compare terms and rates before making a decision. But with careful planning, financing can be a valuable tool for businesses of all sizes.
Is collateral required to obtain a heavy equipment loan?
Some lenders may insist on a certain amount of collateral in order to secure the loan, while others may be more flexible and allow for some other forms of security. Factors that can influence the decision about whether or not to require collateral include the value of the equipment being financed, as well as the overall financial health of the borrower.
Ultimately, it will depend on each individual lender and their assessment of your particular situation. So if you are looking to finance heavy equipment, it is important to do your research and approach multiple potential lenders in order to find the best deal possible.
How much equipment financing can I get?
One of the largest equipment loans on the market is an equipment loan backed by the Small Business Administration. For those who qualify, SBA equipment financing can be for amounts of up to $5,000,000 with a term of 20 years, if the equipment has an expected life long enough to allow terms that long.
Other banks, credit unions, and online lenders may have equipment financing maximums closer to the $100,000,000 or $500,000 mark. Either way, up to a certain point, most lenders will give you enough financing to cover the equipment costs as long as the equipment can be used as collateral to secure the loan.
What credit score do you need to buy heavy equipment?
Credit score requirements can vary depending on a number of factors such as the cost of equipment and the lender. The good news is that heavy equipment financing is often easier to qualify for than traditional business loans. In most cases, heavy equipment financing is secured by the equipment, therefore the lender has collateral which reduces the risk.
If you have at least 1 year of time in business, then a lender may be willing to work with you on an equipment loan even if you have a credit score as low as 600. But then again, it all really depends on the lender. Some lenders may want to see a minimum credit score of 660 for an equipment loan, even if you have a good number of years of business experience.
Can I get heavy equipment financing with bad credit?
For businesses in the construction or agriculture industries, access to heavy equipment is essential. But if you have bad credit, it can be difficult to get the financing you need to purchase the equipment you need. However, there are a few options available for those with bad credit.
One option is to work with a private lender. There are many private lenders who are willing to work with businesses with bad credit. However, you will likely need to provide collateral in order to get approved.
Another option is to seek out government loans or grants. Some government programs are designed specifically for businesses with bad credit.
Finally, you could also consider leasing options. Leasing heavy equipment can be a great way to get the equipment you need without having to finance it fully yourself.
How to qualify for heavy equipment financing
Here's what you need to know about how to qualify for heavy equipment financing.
First, most lenders will require that you have at least two years of financial statements for your business. They'll want to see that you have a history of consistent revenue and profits. If you're a new business, you may still be able to qualify for financing, but you may need to provide personal financial statements as well.
Next, the lender will want to see a detailed business plan outlining how you intend to use the equipment. They'll also want to know what kind of collateral you have to offer in case of default. This could include real estate, vehicles, or other assets.
Finally, you'll need to have good credit in order to qualify for heavy equipment financing. Lenders will pull your personal and business credit reports in order to assess your risk level. If you have a high credit score, you're more likely to be approved for financing.
Can I obtain financing for used heavy equipment?
Yes, it is possible to obtain financing for used heavy equipment. Many lenders specializing in equipment loans are willing to consider older machines that have seen a lot of use. Factors such as the condition of the equipment and the buyer's credit history will play a role in determining whether you get approved for financing and the terms of your loan.
Best Option For Heavy Equipment Financing
Currency Capital
Other Options For Heavy Equipment Financing
There are a number of providers that can help you secure funding for your next heavy equipment purchase. Let’s take a look at the benefits and downsides of some of those lenders.
Funding Circle
Pros:
- Funds faster than traditional bank loans or SBA loans
- Works with a wide variety of business lenders and investors
- Borrowers have access to multiple lenders with just one application
- APRs as low as 10.1%
- Origination fees as low as 0.99%
- No prepayment penalty
Cons:
- Difficult for new borrowers or borrowers with low credit to qualify, with a minimum credit score requirement of 620 and a minimum of two years in business
- Not a great option for borrowers who need quick access to cash, with an average funding time of around 10 business days
- Lengthy application process
Credibility Capital
Leasing vs. Financing Heavy Equipment
Pros:
- With leasing, you’re not required to purchase the equipment outright
- May be easier to qualify for if you have bad credit or are a new business owner
- Makes upgrading equipment easier, because you own it for a shorter amount of time
- You don’t have to make a full down payment, like with financing
Cons:
- You’re still responsible for the overall cost and maintenance of the equipment
- You don’t own the equipment outright, so if it breaks, you still have to pay for it
- Is sometimes more expensive than just purchasing the equipment
