Best Construction and Heavy Equipment Financing Loans
Construction and heavy equipment loans help businesses get the gear they need without having to put all the cash down upfront.
Best heavy equipment financing: More details
What is heavy equipment financing?
Heavy equipment, also known as heavy machinery, refers to large, heavy-duty equipment used across multiple industries, including construction and farming.
Heavy equipment financing helps businesses get the machinery they need to operate. This includes cranes, bulldozers and excavators. As a type of asset-based financing, the equipment itself acts as collateral to secure the loan.
Heavy equipment financing allows small business owners to spread out the cost of expensive equipment, freeing up capital for other business expenses.
Financing vs. leasing heavy equipment
When acquiring equipment, businesses often have two options: equipment financing or equipment leasing. Financing, also called an equipment loan, allows you to purchase the equipment and pay for it in monthly installments. Once the loan is paid off, your business owns the equipment and it becomes an asset on your company’s balance sheet.
Leasing is akin to renting the equipment for an extended timeframe. At the end of the lease term, your business may have the option to return the equipment, purchase it or renew the lease.
| Heavy equipment financing | Heavy equipment leasing | |
|---|---|---|
| Monthly payments | Higher | Lower |
| Monthly cost breakdown | Fixed principal plus interest | Fixed lease payment |
| Is depreciation tax deductible? | May be tax deductible | May be tax deductible depending on the lease type |
| Who owns the equipment? | The borrower | The lender |
| Can I trade in equipment or does it become outdated? | May become outdated | Can trade in |
Keep in mind that taxes vary by state, and this isn’t tax advice. If how equipment is taxed is a major factor in your decision to lease or buy, consult with a CPA to determine the best options for your business.
Pros and cons of heavy equipment financing
PROS
- Access advanced equipment you may not be able to afford out of pocket
- Predictable, recurring payments free up cash flow for other business expenses
- Potential tax write-offs can help you save on your heavy equipment
CONS
- May require a large down payment
- Some lenders may require additional collateral or a personal guarantee to secure the loan
- Equipment may become outdated and need to be replaced
How to get a heavy equipment loan
To get a business loan for construction or equipment:
-
Assess your needs and budget
Before you begin the application process, take a moment to evaluate what kind of equipment you need and how it fits your business operations. Consider things like the lifespan of the equipment, how often you will use it and the return on investment you expect it to bring. -
Get the essential documents ready
Most lenders have requirements for business loans that include a range of documents to assess your financial health and the viability of the loan. Commonly requested documents include financial statements, tax returns and bank statements. -
Research and choose the best lender
Not all lenders are created equal. Research your options, including banks, credit unions and specialized equipment financing companies. Look for those that offer favorable terms, understand the construction industry and have positive reviews or customer testimonials. -
Submit your application
Once you’ve chosen a lender, begin the application process. This may involve filling out an online application or working directly with a loan officer. Be thorough and accurate when providing information, as discrepancies can delay or jeopardize your approval. -
Review terms and finalize the deal
If your application is approved, you’ll receive an offer detailing the loan’s terms, including interest rates, the repayment schedule and any associated fees. Review these terms carefully. If everything appears satisfactory, sign the loan agreement.
Frequently asked questions
Heavy equipment financing allows businesses to purchase essential equipment without paying the full cost upfront. The business gets a loan to buy the equipment and agrees to a structured repayment plan, typically involving monthly installments.
The credit score you need to finance heavy equipment varies depending on the lender and the loan type.
A higher credit score will generally allow you to secure more favorable loan terms and interest rates, though some lenders may offer equipment loans for bad credit.
If you have poor credit, lenders may be more open to considering your application if you make a down payment.
The length of a heavy equipment loan varies by lender. Many lenders offer loan terms up to five years. However, the SBA’s 504 loan program also provides loans for 10, 20 or 25 years.
Whether you should finance construction and other heavy equipment depends on your business’s financial situation, operational needs and long-term goals. To make the right choice for your business, weigh the benefits of owning the equipment against the costs and commitment that come with a financing agreement.
Our methodology: How we chose the best heavy equipment loans
We reviewed more than a dozen lenders to find the best heavy equipment financing companies. To make our list, lenders must meet the following criteria:
- Minimum credit score: While the lenders on this list work with a variety of credit profiles, we prioritize lenders who have a minimum credit score requirement of 680 or lower.
- Rates and terms: We prioritize lenders with more competitive fixed rates, fewer fees and greater options for repayment terms, loan amounts and APR discounts.
- Repayment experience: We consider each lender’s reputation and business practices, favoring lenders that report to all major credit bureaus, offer reliable customer service and provide any unique perks to customers.