Heavy Equipment Financing for the Construction Industry in America
The right tools and equipment for construction jobs make the difference between successfully winning a construction bid and losing that bid. To ensure that you win more bids than you lose, and you successfully finish a project, you need the heavy equipment and tools required to work safely and efficiently. Heavy equipment for the construction industry is expensive, large, and can cause a significant loss to your cash flow. You have the choice to subcontract the work if you don’t have the heavy equipment necessary to complete the task, or, you rent them. Renting heavy equipment can be very expensive but make sense if job is one off work; however, if work is longer than normal, maybe financing or leasing your heavy equipment could be a wise investment with many specific benefits such as lower monthly payment than rental cost. Furthermore, you also benefit from usage, taxes and builds asset in the long run.
If you need to replace, repair, or upgrade heavy construction equipment, consider your heavy equipment financing option. You can get what you need without depleting your business cash flow or savings.
Heavy equipment loans and leases refer specifically to heavy construction equipment like bulldozers, cranes, loaders, cement mixers, forklifts, or other large machinery you need special training to operate. Companies that use heavy equipment range from construction, excavation companies, and even building maintenance companies.
If you need heavy equipment and you do not have the money to purchase it, consider a heavy equipment loan. Financing heavy equipment will free you up to invest your cash in different areas of your business.
Before you take out a equipment loan, follow these tips:
- Pay off some of your short-term loans to free up debt to reduce debt/income ratio
- Decrease your credit utilization which means your credit card can’t be all maxed out.
- Pay bills on time specifically business debts to allow to show good business payment history.
- Create credit accounts with supplies, vendors who reports to D&B, Paynet or Experian Business Credit
- Establish a payment and credit history with set of lenders to allow you to diversify your maximum exposure. Keep your business a separate entity from your personal credit and finances.
Heavy Equipment Financing Options
There are two types of options to get heavy equipment. One is heavy equipment financing, and the other is heavy equipment leasing.
Equipment Leasing or Equipment Loan
Heavy equipment leasing does not require any additional money or collateral down if you fit well in the credit parameter, however, if your transaction is structured certain additional collateral or down payment might be needed to make the lender feel comfortable with the risk structure. You pay a monthly fee to lease the equipment for a set period. At the end of the lease, return the equipment, renew the lease, or buy the equipment at the current market value depending on the type of equipment lease structure you agreed upon at the beginning of your heavy equipment purchase.
If you lease your heavy equipment, it depends on the type of heavy equipment you need you might be able to get financing through the dealer or you might want to find your own equipment finance lender that will know how to structure your heavy equipment purchase especially if the equipment is used. If your equipment has high turnover or you do not use it on every project, renting makes perfect sense. If your equipment has a higher turnover rate, leasing is sensible because it is easier to replace obsolete or outdated machinery. Equipment Leasing can be more expensive in the long term, but it does keep your working capital free and allow you to accumulate asset and keep transaction off-balance sheet depending on the type of equipment lease you choose for you heavy equipment purchase.
Bank Loans for Heavy Equipment
Some banks do offer heavy equipment loans from the commercial side of their business. The target equipment market includes heavy construction contractors, equipment distributors, rental companies, and construction equipment, manufacturers. Big national banks like Chase, Wells Fargo, and Bank of America as well as some smaller local or regional banks will offer loans on heavy equipment. However, banks have strict requirements almost all transaction will not only require full blanket liens, but additional collateral might be required. You will be required to have a higher edit score, specific time in business, and good debt to income and revenue. You will need to provide considerable paperwork and business records, including your personal financial statements, business tax returns and personal tax returns.
Heavy Equipment loans for construction can take weeks to be finalized, and almost 85% of most applicants are turned down due to lack of financial and credit strength. If you do qualify for a heavy equipment loan from a bank, you will receive affordable capital with favorable terms. However, if you’re turned down by your local bank not to worry as alternative equipment loan lenders are abundant that can structure your equipment purchase with ease. There are specialty equipment financing lenders who are not bank but private equipment leasing lenders who specializes in transactions outside the bank’s parameters.
Heavy Equipment Alternative Lenders
Alternative heavy equipment loan lenders streamline their application process to accept all types of credit risk profiles. Usually, you fill out a brief form and return it to the lender. Using an alternative lender means you do not need a spotless credit file, and underwriting practices are realistic, quick, and easy. Some alternative lenders have a reputation for financing 100% of their loan request and they provide decisions within 24-48 hours. You are not required to purchase your heavy equipment from a particular equipment vendor but can shop around for the best prices.
Alternative lenders also offer heavy equipment financing for small business just starting out. Since equipment financing doesn’t require revenue minimum however your limited on the funding amount due to limited time in business. With cost-effective measures enabling you to retain your cash flow and stay on the cutting edge of business, heavy construction equipment alternative loans offer affordable monthly payments and quick release of funds to your vendor.
Other alternative heavy equipment lenders can offer your company up to 100% financing with $0 down, affordable, low monthly payments, no payments for the first 120 days (with approved credit), and flexible leasing options with potential tax benefits.
The potential funds in alternative heavy equipment financing can be up to 10 million, with 24-72 month terms. Funds are available in one day, and funds can be used at auctions, dealers, or private sales. Companies can also apply for a used construction equipment loan, which will keep the costs of equipment down and affordable.
Affordable heavy equipment financing is critical since most heavy equipment are high-ticket items which can strain small business cashflow if heavy equipment purchases are not financed.
Pros and Cons for Construction Loans for Construction
The construction industry in the U.S. is valued at around 1,320 billion dollars, which makes construction a lucrative business. To keep your business in competition, you to keep your equipment in top shape to avoid project delays. Heavy equipment is expensive and will cost you several hundred thousand dollars depending on the equipment and age. Most small to medium-sized businesses are unable to come up with that type of money. Looking for heavy equipment loans is a viable option but be smart and decide whether the loan is right for your construction business.
Pros of getting heavy equipment loans
- You receive money and can purchase equipment. Getting a loan is necessary to access money to purchase heavy equipment quickly. You do not want to stall your business operations due to a lack of funding. Most alternative lenders have a simple loan application process. Provide proof of business and the ability to pay the loan, and your application will get processed within a short period.
- Resolve cash flow issues. Heavy construction equipment is expensive, and it is not viable to pay cash for equipment. A loan will help you not to worry about the cash flow in your business. You will need, however, a small down payment and the ability to pay back the loan in monthly installments.
- With that equipment loan, you can get your equipment immediately. You have no delay in the purchasing process, and your business can carry on as needed.
- Most alternative equipment loans require no collateral except the heavy equipment you are purchasing. Using collateral is dangerous. If you fail to pay your monthly payments, the lender will seize your equipment, sell it, and you are out of the heavy equipment needed to run your business.
- Tax deductions come along with buying equipment. Section 179 of the IRS tax code states that companies get a deduction of up to the full cost of equipment. Make sure your equipment qualifies.
- Loans usually have flexible payment terms that can help with your monthly cash flow. Depending on the value of the heavy equipment you are purchasing, the loan repayment can be between one and five years.
- With a heavy equipment construction loan, your business will improve because you can take care of your projects. You can also bid for more projects because you have received a construction heavy equipment loan.
- Eventually, you will own the heavy equipment you purchased.
Cons of Heavy Equipment Loans
- You can only use the heavy equipment loan to purchase heavy equipment for your construction business, trucking companies or manufacturing business. You cannot use the loan to buy other types of equipment for your business however you can add whatever you need along with the purchase as long as its equipment related.
- You are only using the equipment for a short time. Taking out a heavy equipment construction loan for a sort-term may not be cost-effective so equipment renting might be suitable. Look into heavy equipment leasing if you believe the equipment will generate revenue and future projects can benefit from the same heavy equipment.
- The amount you finally pay in the long run will be higher than what you would have paid if you made an upfront purchase but this allow you to manage your cashflow while receiving all the benefits to heavy equipment financing.
Before making any decision on business loans for equipment, sit down with your accountant and go over the numbers. Find the best alternative heavy equipment financing or bank loans or equipment leasing options to make the right decision for your business.