Best Small Business Loans for Heavy Equipment Financing
Equipment purchases can make up a huge chunk of operating expenses for any small business. This is why small business owners need to explore and utilize multiple funding options so they can finance their operations, especially when it comes to purchasing heavy equipment. In this article, we are going to cover three options available for small business owners as it relates to financing heavy equipment.
As with any financial underwriting and loan program, a smart small business owner should consider all available options available to them. By examining each option, you’ll have a better idea about how you can use equipment financing to support the needs of your small business.
An asset-based loan is a lending product based on the value of your business which serves as collateral that secures funding. Examples of assets that can be used toward an asset-based loan are real estate, inventory, invoices, or other equipment. By using an asset-based loan to cover the heavy equipment, or to utilize an asset-based loan to free up cash for other equipment expenses, asset-based lending can help your small business fund the acquisition of additional heavy equipment.
To secure an asset-based loan, the lender will have your property, inventory, equipment, and invoices appraised or audited. Typically, the valuation of the business determines the amount of money that will be applied to a line of credit. As the value of your company’s assets goes up or down, so too will your credit limit be adjusted.
With an asset-based line of credit, the heavy equipment itself can often act as the collateral to secure the loan. This makes asset-based lending a good option for small businesses that need this type of funding.
Equipment leases are another funding alternative for acquiring heavy equipment. Equipment leasing is generally like renting the equipment you need. You borrow the equipment from an equipment company and make payments over the term of the lease. At the conclusion of the lease, there are typically three options: end the lease and return the equipment; extend the lease and continue making payments and use of the equipment; or exercise a buy-back option which allows you to purchase the equipment outright.
Equipment leasing is a useful option for small business owners who need to utilize heavy equipment temporarily. By setting up an equipment lease, you can use the tools you need to get the job done without purchasing the equipment outright and having an unused, as well as an unproductive asset after a job is completed and your use for the equipment is no longer needed.
SBA 7(a) and CDC/504 Loans
You can also apply for SBA 7(a) and CDC/504 loans if you want to purchase equipment for your business. SBA loans are one of the most sought-after loans as it offers some of the most favorable terms for strong borrowers.
You can borrow up to 7(a) and 504 loans with low-interest rates and longer repayment terms. In fact, the maximum interest rates for 7(a) loan ranges from 6% to 8% and 4% to 5% for 504 loans. If you’ve applied for a loan before, you’d know that this is one of the most competitive interest rates in the market. However, it’s not easy to qualify for an SBA loan. You need to prove that you are a strong borrower through your credit rating, your business’s financial health, and more. The requirements are specific to the lender you’re going to work with, so be sure to check out your options beforehand.
You may know 504 loans as real estate loans, but startup companies and small businesses can also use the funds for long-term equipment purchases. SBA loans are specifically designed to help small businesses obtain funding. However, the processing times usually take several weeks to months. With that said, SBA loans are not ideal for business owners who need immediate funding.
An equipment loan is a lump sum term loan that comes with a stipulation that the funds only be used for the acquisition of equipment. A loan is yet another option where you can finance heavy equipment, allowing you to make monthly payments over the course of the lease term rather than paying a large lump sum for a piece of equipment upfront.
Equipment financing provides small business owners with a great deal of flexibility. By financing heavy equipment, working capital is freed up for other expenses, and the burden of a large purchase and upfront expenditures is eliminated.
There’s no better time to talk to your financial professional about equipment financing for your small business, than right now!