Have you invested in the construction sector? If yes, you may have realized that the construction equipment is expensive. The question that now arises is about the most suitable tips for financing the heavy equipment meant for your construction business.
How to Get Equipment Financing
You can get the funds you need from credit unions, banks, supply firms, and equipment manufacturing companies. The primary financing options for heavy equipment available currently include:
- Equipment loans
- Equipment leasing
- Small business loans
Before choosing any financing options, you should first assess the type of construction equipment that you need. For starters, what type of vehicles, machinery, and other construction equipment are you financing? Will the equipment have to be updated regularly, or you are looking for something that will last? After determining all your needs, you can decide the equipment-financing options that suit you best.
If you opt for an equipment loan, you will own the equipment for good after the purchase process. After paying up the loan, you can even use the equipment as equity if you need to acquire other pieces of equipment. You can also arrange a leaseback agreement whereby the finance company can acquire the equipment you own.
It is easy to get an equipment loan compared to small business loans because the regulations put in place are less risky, and different factors are considered, including the experience with the equipment. Since the equipment can be used as collateral, the lender and get back the equipment and resell it, some tax advantages are also present, and you will enjoy the tax deductibles.
The equipment lenders need a down payment before you get the equipment. Nonetheless, depending on the assets you have, you can avoid issuing a huge sum of money as a deposit. If you have assets, you can use them as collateral, and you won’t require a down payment in this case. It means that when you default on the loan, the assets will be seized and resold to cater to the equipment loan.
When you lease construction equipment, you will manage to save a significant sum of money. You will also get to use the latest form of equipment. The monthly payments will be lower as compared to when you have applied for a business loan. You don’t need to issue any down payment in this case.
Leasing is better since it offers more flexibility as compared to a loan. It is also easy to negotiate the terms. For example, if you need to end the lease agreement and prefer to keep the equipment, you can acquire everything at a discounted price. Also, there is a termination fee, but you will not be stuck making payments on the equipment you don’t need.
The rental payment is tax-deductible. As for leasing, there is no depreciation tax benefit. The interest rates will also be higher than those of the small business loans, and you will not build your equity while making payments.
Small Business Loans
You can apply for a small business loan to acquire the construction equipment. The terms should match the lifespan of the construction equipment you want to purchase. There is no need to continue paying for equipment that you no longer need.
If you apply for a small business loan, you should look for the best rates. Ensure that the credit unions and banks have also issued the best rates; however, your credit score should be good if you are to qualify for a loan. If your credit score is not as good, the best option is liaising with online small business loan providers. Online loans are easily accessible; however, the interest rates are high compared to the traditional lenders.
Since construction equipment is expensive, you have to apply for a large loan. The main issue is that your ability to apply for another loan will be affected if you need more money to finance other errands.
Before choosing any of the financing options listed in this article, you should consider how the equipment will be maintained. For the leasing option, maintenance may be offered if the equipment breaks down; if you are prepared to pay for the maintenance on your own, the best option is to acquire your own equipment.
By Abby Drexler, BOSS contributor