What is Heavy Equipment Financing?

Some business owners apply for heavy equipment loans even if they have the money to pay for their machines upfront. Why? Because they understand that running a small company is very unpredictable. The money they would use to pay for heavy equipment may be put to better use as a reserve for emergencies or for more value-adding investments like opening a new location.

Heavy equipment financing gives you the convenience and flexibility of having heavy-duty machines that keep your business operating without having to shell out a large amount of money outright for them.

In this article, we’ll demonstrate what heavy equipment financing is and why it is the best loan solution for making large machine purchases.

Key Takeaways

  • Not all types of equipment financing solutions can suffice for large purchases. If you are considering purchasing heavy-duty equipment to support your business, consider getting heavy equipment financing.
  • Heavy equipment financing is the best loan solution for purchasing construction and inventory-related equipment, from forklifts to tractors.
  • Some businesses may also opt for heavy equipment leasing in which the lessee pays for the amount of time they used a particular equipment to support temporary work. However, in this setup, the lessee has no right over the equipment they rented even if they are paying to use it.
  • There’s no guarantee that borrowers will get the full amount of the heavy equipment loan they are applying for, but if they have a favorable credit score and other supporting documents, they are likely to receive 100% of the loan.

What is Heavy Equipment Financing ?

Heavy equipment financing (also known as construction equipment loans) allow businesses like yours to borrow money for the purchase of large machinery and pay them on a schedule. This eliminates the need for huge upfront payments, which most small businesses usually are incapable of given their limited budget.

Heavy equipment financing is most commonly used to pay for any construction equipment that range from bulldozers, forklifts, tractors, and other construction and engineering equipment.

What are The Benefits of Heavy Equipment Financing?

Small business owners and managers need equipment to create their products, support their operations, and build their infrastructure. This is why they need a small business financing solution that’s dedicated for this need: heavy equipment financing not only suffices them with access to funds for the purchase of large machines. It can also be used to replace worn-out or age-old equipment before they cause permanent damage to the business.

If you are struggling with the same issues, getting heavy equipment financing will go a long way in improving the way you run your business. Here are the benefits you get with extra capital for heavy-duty resources.

1. Purchase New Equipment

If your business is new and you already found the equipment your business needs, heavy equipment financing can help you purchase them ahead of time so you can start meeting your goals and delivering customer demands. It’s also a good way of increasing your organization’s productivity and efficiency. If you’re doing things manually and don’t have the machineries necessary to make your operations run seamlessly, you’ll end up wasting both time and cash when inevitable human errors are made here and there.

2. Replace or Upgrade Old Machines

When your equipment is no longer working the way you expect it to, it’s probably time for an upgrade. Some companies turn a blind eye on worn-out equipment simply because it’s frustrating to repair, not to mention costly.

Instead of forcing older machinery to function like new, you can apply for heavy equipment financing to replace or upgrade your old equipment. This will save you time and money in repairing equipment. Likewise, it gives you the confidence that your operations are smooth-sailing as your machines are in tiptop condition.

3. Makes You More Asset-rich

Getting heavy equipment financing makes you more asset-rich because you have heavy-duty machineries that are critical to growing your company. This could help attract new clients who value working with a company that prioritizes its operating needs.

Is Heavy Equipment Financing Different From Equipment Loans?

In terms of their functions, both heavy equipment financing and equipment loans are similar in that they provide you with working capital to purchase your hardware requirements.

The difference between the two lies in where you’re going to use them. In heavy equipment financing, the money is intended for heavy-duty machineries such as what we mentioned above. On the other hand, equipment loans are more general. You can use your equipment loans to purchase appliances that are critical to accomplishing administrative tasks – from computers to kitchen appliances (if you’re running a restaurant business)./p>

What Makes Heavy Equipment Financing Different From Leasing?

If you need heavy equipment for temporary use, opting for equipment leasing may be the best option for you. Why? A lease allows you to rent heavy equipment for a specific period of time. You only have to pay a certain amount per month to use the equipment. When your lease term ends, you can decide to rent it out again, return it to the vendor or rightful owner, or purchase the equipment.

However, when you lease equipment, you are not the rightful owner, and therefore, cannot make decisions about said equipment. Leased equipment also won’t show up on your balance sheet. In contrast, heavy equipment financing makes you the rightful owner of the equipment at the very beginning of your term. That means that you’re free to decide what to do with the machine even when you’re done using it.

If you’re deciding which one to get, think about your business’ long-term needs. If you believe that you will no longer use a certain equipment in the future, getting heavy equipment leasing is something you might want to consider.

Heavy Equipment Financing Loan Amount and Terms

Heavy equipment financing allows you to fund up to 100% of the cost of the machine you’re looking to get. Take note that there’s no guarantee that you will get the full amount you’re trying to apply for – this will still depend on a number of conditions, particularly your qualification.

For those who have low credit scores and low cash reserves, you can expect to pay a down payment to get the equipment. It’s best that you work with your lender to discuss the rates and the terms you’ll qualify for.

You generally won’t exceed the useful life of your heavy equipment, but your loan terms will ultimately depend on the type of equipment you’re getting and the lender you’re working with. Be prepared to answer the lender’s questions about your needs for the equipment and the frequency with which you plan to use it.

Heavy Equipment Financing Interest Rates

Just like with the terms and loan amount, your rates for heavy equipment financing will depend on a number of factors like your credit score (should be a minimum of 620), business experience, the equipment type, the condition (if it’s brand new or used), and your business’ industry. In general, heavy equipment loan rates range anywhere from 8% to 30%, but this will be determined by your lender.

Should You Apply for Heavy Equipment Financing now?

Small businesses that are growing rapidly need to secure their operations with heavy equipment. Getting heavy equipment financing will allow you to reap the benefits of heavy-duty machinery that will make you more efficient.

Why Work With SMB Compass to Get Heavy Equipment Loans?

SMB Compass has a proven track record in providing small business financing solutions. We will work hand-in-hand with you to ensure that you get the right equipment for your business. Our expertise is derived from our decades-long experience in working with various industries. This allowed us to make calculated decisions that will benefit your business.