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Updated: April 1st, 2020
Most businesses need some type of equipment to operate, whether it’s an industrial fridge, printer, or desktop computer. However, for businesses that rely on heavy equipment — like forklifts and cranes — financing and maintaining this machinery can be a huge cost. Fortunately, heavy equipment financing can help.
Similar to a regular equipment loan, heavy equipment loans allow businesses to borrow money for major pieces of machinery and make payments on a schedule, instead of paying up front. Financing heavy equipment helps free up your business’ cash flow while giving you the tools you need to continue serving your customers.
If you’re considering heavy equipment financing, it’s important to understand your options. Below, we’ve compiled a list of the most frequently asked questions about financing heavy equipment, so you can find the best solution for your business.
Heavy equipment financing is different from regular equipment financing. The latter can include a variety of types of business equipment, like computers, file cabinets, furniture, printers, restaurant supplies, and even vehicles. Heavy equipment financing, on the other hand, refers specifically to construction equipment, like forklifts, bulldozers, cranes, cement mixers, loaders, or other large machinery you need a license or special training to operate.
The businesses that use heavy equipment can range from construction, building maintenance, and excavation companies to ice rinks, farms, food production companies, and medical care facilities.
If you need equipment that’s fundamental to your daily operations and you don’t have the money to buy it, you should consider heavy equipment loans. You may also want to get a loan if there’s a particular growth project you want to spend money on, like remodeling your office or hiring a new administrative director. Financing heavy equipment can free you up to invest cash in an area of your business that has greater profit potential.
There are two financing options for heavy equipment: financing and leasing. With a heavy equipment lease, you don’t put any money or collateral down — you simply pay a monthly fee to rent the equipment for a set period of time. At the end of your lease, you can either return the equipment, renew your lease, or buy the equipment at market value.
With heavy equipment loans, however, you borrow money upfront to purchase the equipment right away. Once you finish making monthly repayments, you own the equipment outright. Depending on your credit and the cost and condition of the equipment, you may be able to finance up to 100% of the cost of your machinery, though this isn’t a guarantee.
Whether you opt for a lease or a loan for financing heavy equipment depends on the type of equipment you’re interested in and how much working capital you have. If you’re using equipment that has a high turnover, leasing makes it easier to replace items that become outdated or obsolete items, though it can be more expensive long-term.
A loan, on the other hand, is a longer, but potentially more rewarding commitment. If you want to invest in machinery that will last for a decade or more, purchasing it outright can save you money in the long run, help with taxes, and add value to your small business assets.
In general, it’s easier to qualify for heavy equipment loans than other business loans because the equipment acts as collateral. Plus, the amount you borrow is directly tied to the price of the equipment you’re interested in, rather than being based solely on your revenue or business credit score.
Every lender is different, but if you’ve been operating your business for at least a year and have decent credit or good cash flow, you should be able to qualify for a heavy equipment loan with fair rates. Even if you have low cash flow or mediocre credit, you can usually qualify by offering a down payment for the equipment.
Yes. Both large and small banks offer loans for heavy equipment, but you may need a higher credit score or show of revenue to qualify. The upside is that bank loans typically have lower interest rates and longer lending terms. Considering the better heavy equipment loan rates and additional benefits, it’s worth exploring if you can afford to wait a few months before receiving a response.
You don’t need to have excellent credit to receive heavy equipment loans. Many online lenders accept less than stellar credit scores if you can prove you have good cash flow or revenue, but you may struggle to qualify if you have a score under 620 (and may receive worse heavy equipment loan rates).
It depends on where you decide to apply. Banks generally offer more favorable interest rates, but the application process can be tedious. You typically have to submit a stack of financial documents, which may or may not include a business plan, then wait 90 days to receive a response.
With online lenders, though, the application process for heavy equipment loans can take as little as 30 minutes. You usually only need to submit your business and personal tax returns, a couple of recent bank statements, and an equipment invoice. Some lenders may ask you to share additional financial statements, like a balance sheet, income statement, or profit and loss sheet.
With heavy equipment financing, the equipment itself usually acts as collateral. If you default on your loan, the lender simply takes back the equipment. However, if you have poor credit or low cash flow, your lender may ask you to make a down payment on the equipment. If, for example, the cost of your forklift is $50,000, you may have to hand over $10,000 to show the lender you’re truly invested.
Interest rates for heavy equipment financing depend on your credit, cash flow, business experience, equipment type, and condition, and whether or not you give a down payment. If the equipment you need has a lower cost, you may have to pay higher interest rates, whereas more expensive equipment could get you lower rates. In general, heavy equipment loan rates range between 8% and 30%, depending on the lender.
Term lengths vary depending on the lender, but they usually align with the life expectancy of the equipment you need. For example, if the projected lifespan of your new bulldozer is 10,000 hours before needing repairs, then you may have a term length of five years if you use it at least 40 hours a week.
If you go through a bank, you may have to wait several months to receive the funds. An online lender or financing company, on the other hand, typically gives you the money within a few days if you’re approved for heavy equipment financing.
This depends on the type of equipment you have, what you use it for, and how many hours you’ve put on it. In general, though, if the condition of your equipment is compromising the quality of your work, slowing your pace, or posing a safety concern, it’s probably time to consider replacing it. It’s also a good idea to consider making any necessary repairs to your equipment while you’re still within your warranty period.
Depending on your industry, the equipment you use could become obsolete in a couple of years. Equipment that seems essential right now could become irrelevant in just five years if there are new innovations and technology. If you think your equipment might become obsolete, then consider leasing it instead. This will give you the freedom to take advantage of the equipment while it’s effective, then switch to something else as technology advances.
At Funding Circle, our heavy equipment loans are designed to help business owners build and expand upon their operations — fast. Terms go up to five years, with competitive interest rates. We have a simple one-time origination fee, fixed monthly payments, and no prepayment penalties, so you can manage your money without stress or surprises.
When you’re ready to apply for heavy equipment financing, the process takes just 10 minutes and you can get a decision in as little as 24 hours. Our dedicated account managers will answer any questions you have along the way.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.