6 tips for financing heavy equipment for your construction business
Heavy equipment financing allows you to get a bank loan or lease to purchase construction equipment for your business. This makes it more convenient to have equipment without purchasing the equipment directly. The construction equipment that is purchased with the loan serves as collateral for the loan. Heavy construction equipment that can be financed include forklifts, bulldozers, excavators, engineering equipment, and tractors.
Although you have the funds to buy the construction equipment you need, it is best to go for heavy construction equipment financing. This will allow you to devote your cash to larger networks. This article presents six tips for financing heavy equipment for your construction business.
Ready for your equipment
If you decide to take out a loan for your equipment, it will automatically belong to you upon purchase. Your gear can also be used for equity after you’ve paid off your loan. This is beneficial if you need to purchase additional pieces of equipment. Another option is to use a sale-leaseback contract. In this case, the loan company is able to acquire the equipment after the lease ends.
It is much easier to take out an equipment loan than a small business loan. This is because the regulations are not as risky. In addition, various factors are taken into account, including your experience using the equipment. There are tax advantages associated with financing using an equipment loan. For example, it can be used as a tax deduction.
Keep in mind that you need to have a down payment when getting an equipment loan. However, you can avoid a large down payment if you have multiple assets. Your assets can be used as collateral and, in this case, you would not be required to make a down payment. The only downside is that if you don’t pay your loan on time, your property will be foreclosed and sold, to pay off the loan.
Rent the equipment
Renting equipment will save you a lot of money. In addition, you will benefit from the most recent equipment. Since this is not a loan, your monthly payments will be reduced. You will also not be required to make a deposit for the equipment.
Leasing offers many flexible advantages. For example, you can negotiate the terms of the lease. If you decide to end the rental agreement and prefer to keep the equipment, this option is available. In addition, you will be able to buy it directly at a reduced price. Unfortunately, there is a termination fee, but you won’t have to continue making payments. In addition, the interest rates will be a little higher than an equipment loan. In addition, you will not be able to build equity since there is no loan repayment. However, another advantage of leasing is that it is tax deductible.
Eligibility for a heavy equipment loan
The loan amount depends on the type of equipment you want to purchase. So, it’s not just based solely on your credit score or your income. Keep in mind that every loan company is different. However, if you have good cash flow and good credit, you should have no problem qualifying for a loan with good rates. If you happen to have low cash flow or a poor credit rating, you can always offer a down payment for heavy equipment.
The interest rate on the loan depends on your business experience, your credit rating, and the type of equipment. It also depends on whether you are paying a deposit. If the equipment is not 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 generally between 8% and 30%.
Terms of office
The term of your loan should coincide with the life of the equipment. For example, if the lifespan of an equipment is 50,000 hours before a repair is necessary, it is wise to have a lifespan 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 is not as rigid as that of unsecured loans. Most of the time, you will receive funding within two business days. Online lenders tend to fund loans faster than finance through a bank.
Once the equipment has been funded, the next step is to contact the vendor. The vendor is the company that owns the equipment and therefore determines how long it will take before you receive the equipment. Make sure you have the invoice from the supplier. This will speed up the process so that you can get the equipment in a timely manner.