Finding the right equipment financing solution in the construction industry is vital to fund your heavy equipment and keep operations moving. However, heavy machinery and equipment costs can be too expensive to bear. You must find the right equipment financing to fund the equipment purchase instead of using up working capital. A financier or lender will provide funds for a heavy equipment loan so that you can purchase heavy equipment. Lenders offer loans to small enterprises that want to operate in the construction industry but lack the funds to pay for the equipment upfront.
It is possible to obtain construction equipment financing from credit unions, banks, supply companies, heavy equipment leasing companies, equipment manufacturers, and other independent and online lenders.
Before choosing a financing source, evaluate the required construction equipment. First, determine the type of vehicles, machinery, or other heavy equipment to be financed. Then, assess which of the three primary financing options best suits your requirements and budget.
There are three primary equipment financing options:
With an equipment loan, you will own the equipment from the start of the loan. Like your car, once you repay the loan, your equipment will be used as equity toward a new piece of equipment. Once your loan ends, you can arrange a sale-and-leaseback finance option for cash and lease the equipment from the lender.
An equipment loan is more accessible than a small business loan as credit standards are flexible and depend on other factors, such as your experience with the equipment. In addition, since the equipment has inherent collateral, your lender can take back the equipment to resell or lend. You will also enjoy tax benefits by owning equipment. With time, you will enjoy a tax-deductible on the interest and a depreciation tax benefit.
Equipment lenders typically require a down payment before lending the equipment. Suppose you have enough assets to use as collateral; it is possible to shoulder the burden of financing without needing a down payment. However, this implies that in the event of a loan default, your assets will be seized.
By leasing heavy equipment, you can save a lot of money and enjoy upgraded equipment. Another benefit is lower monthly payments compared to an equipment loan. Only a small down payment may be required.
Leasing equipment is relatively more flexible than an equipment loan, and you can negotiate the terms more easily. For example, if you decide to keep the equipment at the end of the lease, you can purchase the equipment at a reduced price. Similarly, if you realize you no longer need the equipment, you can always return it to the heavy equipment leasing company. There will be an early termination fee in this case, but you will not be stuck making monthly payments on something you do not need.
Rental payment is tax-deductible; however, you will not get a depreciation tax benefit when leasing. Interest rates are likely higher than equipment loans, and you will not be building equity as you make payments.
3. Small Business Loan
Another option is to take out a small business loan to pay for heavy equipment. Note that the loan term should be equal to or less than the equipment's expected lifespan. You only want to pay off the equipment if you use it.
Search for the lowest annual percentage rates. Banks and credit unions typically provide the lowest rates, but excellent credit is needed to qualify. Otherwise, an online small business loan provider can provide a loan. The loan will be easier to obtain with an online provider, but the interest rates are generally higher than with traditional lenders.
Before choosing an equipment financing option for your business, consider the type of maintenance requirements the equipment will need. Some equipment leases may also offer services in case of breakdowns or other malfunctions.
Heavy equipment leasing companies such as Vendor Lender are an excellent option to fund your equipment.
