Do you run a construction company and you need financing? If YES, here are 10 best sources of construction equipment loans and how to get them successfully.
No construction company can sustain or grow their business without the right heavy equipment fleet. If your machine is worn out, you need to replace it, or if you need to expand your fleet when you get more specialized jobs, then you need to get new functional equipment.
But it is a fact that not all construction businesses can fund the purchase of heavy duty construction equipment because of the amount of money needed for it. This is why they need to look out for loans to help them finance their construction equipment.
An equipment loan is a form of financing that enables small business owners to get the equipment and machinery they need to grow their companies when they are short of cash. Typically, equipment loans do not require collateral and that is one of the things that endears them to entrepreneurs. However, if you default and cannot continue payment, the lending body will repossess your equipment and sell it off to recoup their cash.
In most instances, depending on the lender, small businesses are responsible for a down payment of between 10% and 30%, and the loan provider finances the rest. Some lenders, however, may be willing to finance the entire cost of the equipment, at a higher cost of course.
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5 Benefits of Equipment Loans
An equipment loan is often easier to get than a small business loan since credit standards are less strict and they rely on other factors such as experience with equipment, etc. Again, there are tax advantages to own equipment, as you can enjoy a tax deductible on interest and a depreciation tax benefit over time. Other benefits of equipment loans include;
- Quick Approval
Generally, equipment loans are approved (or denied) rather quickly because of their nature. You can get faster approval when you go with nontraditional lenders, example online lenders. This means that you can have the additional capital you need faster, so you can purchase or replace the equipment you need.
- Tax Deductible
You may be able to deduct your equipment loan monthly payments as a business operating expense. Check with your lender as well as a business tax attorney to be sure that your lender provides you this feature.
- More Money In Your Pocket
Equipment loans help you to have cash-on-hand for other purchases you may need to run your business. Imagine one of your delivery trucks breaks down and needs to be replaced. Rather than spending money from your business revenues to pay for these very high-ticket items, equipment loans can be used to replace or repair this very expensive and vital piece of equipment.
- Flexible Payment Schedule
Depending on the lender from whom you secure your business equipment loans, you may be able to take advantage of flexible payment options. This comes in handy as you’re working to replace the equipment, continue running your business and also making payments on your business equipment loans.
Some lenders may offer you the option of choosing monthly, seasonal, quarterly, biannual or even annual payments depending on the type of loan you secure. Note: you may also be able to take advantage of a 90-day deferment on repayment of your equipment loan. Again, work with your lender on your equipment loans to find out what works best for your business needs.
- Approximately 25% of “Soft Costs” Covered
Soft costs include things such as fees, delivery charges and freight charges. Again, each lender is different, so be sure to do your research to know exactly what charges are applicable to the loan and which charges you will be responsible for covering.
10 Best Sources of Construction Equipment Loans
If you are sure that heavy equipment loans is the right form of funding for you, you now have to decide which lender to apply to. There are quite a number of lender options that you’ll have to sift through.
But first, you should know that bank funding might also be an option. Some banks offer financing on construction equipment. If you can qualify for a bank heavy equipment loan, then you should probably take it because banks offer the most affordable capital and the longest terms.
Here are some top lenders for heavy equipment financing.
- Direct Capital
Direct Capital is an online lender who can offer flexible heavy equipment financing solutions that are tailored for your business’s budget and revenue streams. They offer financing for construction equipment, capital equipment, commercial vehicles, and other heavy equipment.
With equipment financing of up to $500,000, term lengths ranging from 6 to 72 months, and interest rates as low as 5.49%, Direct Capital can really pull through for small business owners who need to buy big-ticket pieces of equipment and pay them down gradually.
Direct Capital can work with your business to figure out a monthly, seasonal, or deferred payment schedule, depending on your business’s revenue streams. They offer both loans and leases. And if you need funding fast, Direct Capital has you covered—they can get you funded with heavy equipment financing as quickly as one day.
The catch, of course, is that 5.49% is the lowest interest for the best borrowers. Most borrowers will end up paying a higher interest rate, and the rates are a bit higher than what a bank would charge you.
- Funding Circle
Another top lender that offers heavy equipment financing is Funding Circle. If you need money to buy a big-ticket piece of equipment, then Funding Circle can offer heavy equipment financing from $25,000 to $500,000.
Funding Circle is not a specialized equipment lender, but they offer large amounts of capital at rates approaching bank rates for the best borrowers. Plus, depending on how long your equipment is supposed to last, you’ll be able to access repayment terms anywhere from 6 months to 5 years. Funding Circle’s rates on equipment financing starts as low as 4.99%.
Funding Circle is a bit slower to move than other online lenders, as their average time to funding is one week. So if you’re working with a time-sensitive deal on a piece of equipment, then Funding Circle might not be the best option. To qualify for Funding Circle, you need at least 2 years in business, a FICO score of 660, and $150,000 in annual revenues.
- Balboa Capital
Balboa Capital is another online equipment lender to try for heavy equipment financing. Balboa Capital’s commercial financing can cover anything from a company-wide technology revamp to an ambitious expansion initiative, and fortunately for business owners in need of machinery, heavy equipment financing falls within this program’s range.
This program offers funding of up to $250,000 to small businesses that need money for heavy equipment. Terms range from 2 years to 6 years, so whether you’re hoping for short-term or longer-term options, Balboa Capital’s equipment leases have you covered.
You need at least $300,000 in revenue and you should be one year in business to be eligible for this program, and if you qualify, you’ll be able to spend the proceeds on any business equipment you need.
- Commercial Credit Group Inc. (CCG)
Commercial Credit Group Inc. (CCG) provides equipment financing for construction companies throughout the united states and Canada. They offer flexible financing solutions for new and used equipment that are customized to your business. When financing through CCG, you can receive construction equipment loans with manageable monthly payments and flexible terms tailored to meet your business needs.
CCG specializes in equipment financing for small- to medium-sized businesses. They have experts that will listen to you and customize a plan that fits your budget. If your business experiences seasonal fluctuations, as many construction companies do, CCG may be able to provide seasonal payment options and additional working capital if needed.
Construction companies often face seasonal fluctuations and go through periods of accelerated growth, as well as shortages of work. In some parts of the country, weather is a large factor, and at other times work may be slowed down by regulations and other issues that arise. CCG understands this process and may be able to assist you during these times with flexible payment plans.
CCG, unlike other financing companies, may be able to offer working capital loans for construction companies who are looking to expand operations and place bids on new projects. General contractors want to know companies have sufficient cash flow for completing a job without running into financial trouble along the way. CCG may be able to help you structure your debt to improve cash flow and demonstrate the financial stability necessary to win certain jobs.
- National Funding
National Funding is a leader in the equipment financing industry. With their lowest payment guarantee and no down payment requirement, they typically cost less. Their dedicated loan specialists will work to get you a quick approval on virtually any type of equipment. They will then find the payment option that’s best for you.
National Funding offer up to $150,000 in equipment leasing on new or pre-owned equipment and a wide variety of payment options.
Kabbage is an online lender which offers assistance for small and Online business owners in need of fast access to capital to grow their business. Business loans offered through Kabbage, are sometimes referred to as Kabbage lines of credit
Kabbage looks at your business performance — not just a credit score — to let you know right away how much funding you can access. To qualify with Kabbage, you should be in business for at least one year and have a minimum of $50,000 in annual revenue or $4,200 per month over the last three months.
Applying is free and you have no obligation to take funds. To qualify, you must have a business revenue of up to $50,000 annually or $4,200 per month over the last 3 months.
How to apply for Kabbage line of credit
- Create a login and provide basic business information: Enter your email address and password so you can return to Kabbage anytime. Then enter your business name, type and industry to help us understand your business.
- Securely link your business accounts: With secure, ongoing access to your accounts, they can review your revenue in a fraction of the time it takes traditional lenders and can provide the right amount of funding at the right time based on your latest business performance.
- Get a decision quickly: They will assess your business performance to let you know how much funding you can access. They analyze a variety of financial performance indicators like revenue consistency, cash flow and the business owner’s consumer credit, so one factor won’t necessarily keep you from qualifying.
- Pacific Island Financial
Pacific Island Financial provides flexible finance terms to meet your business financing needs. They have flexible terms up to 60 months to ensure your monthly payment fits your needs. Again, you do not need perfect credit to qualify. A D credit can get you qualified.
To get equipment financing, you’ll typically need to be in business at least 12 months, have $50,000 or more in annual revenue, and have a credit score of 650 or higher.
If your credit score is lower than 650 but you can show proof of solid cash flow and revenues for the past 3-6 months, you can still qualify. Your equipment loan payments are determined by four things: your loan amount, interest rate, term, and collateral. These factors can vary widely across industries and equipment types.
- Trust Capital
Trust Capital approves startup companies for equipment financing. Trust Capital has the following features;
- 100% purchase financing
- Up to $150,000 with a simple one-page application
- Up to $3,000,000 with financial disclosure
- Next-day funding with pre-funding for equipment vendors available
- 12 – 72 month fixed payment terms
- No down payment requirements – qualified borrowers
- Lowest Rates in the industry for qualified borrowers
- Eligibility for all new and used equipment purchases
- No debt on owners personal credit reports
- No pre-payment penalties
To apply, you must ensure that you have a minimum credit score of 600, and that you have had no bankruptcies in the last 7 years. You should also ensure that you have no unresolved tax liens.
You can get reviewed in 24 hours and you money can be released in 5 days. Trust capital will give you Equipment Financing of up to $1,000,000, and your loan will not apply on personal credit. Again, if you are qualified buyer, you are not required to pay any upfront fees.
- SBA 7(a) and CDC/504 Loans
If you’re planning to make an equipment purchase for your business, SBA loans offer some of the best rates available for strong borrowers. 7(a) and 504 loans offer financing up to $5-5.5 million with low interest rates: 7(a) loans have maximum interest rates between 6% to 8% and 504 loans have interest rates between 4% to 5%, which are some of the most competitive interest rates you can find anywhere.
To qualify for these loans, you’ll also need to prove your creditworthiness as a borrower and the financial health of your business.
While 504 loans are primarily known for being real estate loans, they can be used for long-term equipment and machinery purchases, and they can be used by new businesses and startups. Because of their low interest rates, they should be attractive options for any established or new business making a serious investment in equipment.
One downside to both 7(a) and 504 loans is the longer processing times—SBA loans can take several weeks to months to process, so they aren’t ideal for business owners in a pinch (though you may want to consider a 7(a) Express loan or a standard bank loan instead).
Compared to other alternative lenders that can provide funds in 48 hours or less, OnDeck offers a lower range of APRs and higher loan limits on its products. APRs start in the single digits for loans and 13.99% for lines of credit (though only borrowers with strong credit scores will qualify for these rates).
You can borrow up to $500,000 for a loan and $100,000 for a line of credit. To qualify, your business must be at least one year old with $100,000 in annual revenue. You’ll need a personal credit score of 500 or more to qualify for either product. Repayment terms vary from three months to three years, meaning you can be debt-free as quickly as you choose.
OnDeck requires weekly or daily repayment, which some business owners prefer to large monthly payments. Loan term is between 3 to 36 months, and you can make repayments daily or weekly. This lender should be your go-to lender if you need funds on short notice, say 24 hours. The loan amount range from $5,000 to $500,000.
7 Helpful Tips on How to Get Construction Equipment Loans
As your business grows, you will need to replenish your inventory, provide daily, monthly, and annual maintenance on key equipment, and ensure timely delivery of your product or services. Equipment loans are a vital resource to the small or online business owner. These are some tips that would help you get approved for equipment loans whenever you apply.
- Make Sure Your Credit Is In Good Shape
If you have had late credit card payments, if you have defaulted on some loans, or have had a history of bad credit, then know that all of these things will work against you when you apply for equipment loans. Most lenders will not extend any kind of loan to a small or online business that is deemed too risky.
One of the most important – if not the most important – small business loan requirements is ensuring your credit is excellent. Preparation is key. Do your research ahead of time.
Know your FICO score – a summary of your credit risk which lenders use to assess things such as whether or not to extend credit and if so, at what interest rate. You can identify your credit risk and find out your FICO score by employing free online tools such as the one at www.fico.com.
When meeting with potential lenders, come prepared to show not only your business credit history but your personal credit history as well. Got credit card debt? A few late car payments? Student loans in default? These kinds of things will delay if not halt the equipment loan approval process. Excellent credit is a fundamental aspect of small business loan requirements. Work aggressively to clean up your credit, fix any credit reporting errors
Lenders will look to your business plan as a roadmap of your future success. For this reason, you need to get a strong and well written business plan. You should identify your business, describe your product or service, detail your current cash flow system and project an aggressive, yet a realistic set of goals for your future business growth.
Identify your target market, the socio and economic demographics of your primary market and then explain in detail how your product or service will fulfill a need within this market. Finally, summarize your entire business plan in a few paragraphs at the very beginning of your plan and call it the “Executive Summary.” This will give lenders a good synopsis of what your business is all about.
A good business plan does not have to be pages and pages in length. However, it should be thorough and well thought out. There are many templates and examples of business plans online. Find one that works for you and implement it as part of your strategy to secure your equipment loans.
- Make Sure You Have An Updated Personal Resume
Even though you are not applying for a job, a personal resume is a great resource to have when applying for equipment loans. Lenders of all kinds look to a personal resume for character traits that will support the small or online business plan. They want to see the person behind the business. And, since you will be responsible for repayment of the loan, lenders will want to make sure you’re a good credit risk for any equipment loans issued.
- Have Cash Flow Statements At The Ready
Being able to show your money coming in and your money going out in current terms is a critical factor that most lenders require before issuing any kind of equipment loan. For this reason, you need to get your finances in order. Hire a certified public accountant to go through your financial records.
You’ll need to make sure you have both your personal and business financial statements in order and bulletproof. It is one of the best indicators as to how your business is doing in the real world and it’s one of the main things lenders consider when reviewing small business loan requirements.
- Gather your business information
Since equipment loan providers have the machinery itself as collateral, they generally ask applicants to submit less information than traditional small business lenders would. In most instances, they’ll require you to submit basic information about your business, including ownership information, contact information, federal tax ID numbers, and whether your business is an LLC, corporation, partnership or sole proprietorship.
6. Collect financial statements
You’ll also need to gather your business’ financial records. Equipment loan lenders typically like to see financial statements, bank balances, and tax records. They’ll likely want to see credit score information, too.
7. Shop equipment loan lenders
Once you’ve gathered the information you need to secure a loan, it’s time to shop for loan providers. Use the above criteria to find a lender that is willing to offer you the money you need with comfortable terms that make sense for your unique situation, if it’s possible.
4 Important Factors to Consider Before Applying for Construction Equipment Loans
a. Financing Amounts: The first thing to consider when you want to apply for equipment loan is the amount the lender is willing to give you. With heavy equipment financing, you’ll be able to fund up to 100% of the price of the equipment you’re hoping to buy for your business. The key words here are “up to.” 100% financing is generally reserved for the best borrowers.
If you have low credit, low revenues, low cash reserves, or an older piece of equipment, then you’ll likely need to bring some down payment to the table. Your specific percentage will depend on the quality of equipment you’re hoping to buy and your own credit score, but if the conditions are right, then they could potentially finance the entire cost of the machinery your business needs.
b. Repayment Term Lengths: When applying for equipment loan, you need to consider the term of the loan. You must know if is favorable to your business. Note that the repayment term length on your heavy equipment financing will also depend on the nature of the equipment you’re hoping to buy—you’ll typically repay your heavy equipment financing over the projected life of the equipment in question. The term of the loan generally won’t exceed the useful life of the equipment.
c. Interest Rates: Yet another thing to look out for when applying for construction equipment loans is the interest rate that you will be given. A lot of lenders have varying interest rates, so you should go for one that suits your interests better. Because your construction equipment secures the loan, the lender takes on a lower risk. If you’re unable to pay back your loan, the lender will simply seize the piece of equipment.
Since the risk for the lender is lower, you’ll be able to access relatively low interest rates for heavy equipment financing. Generally speaking, heavy equipment financing will have interest rates as low as 8% or as high as 30%. A word of warning: you may see rates advertised as low as 5-6%, but it’s a rare occurrence that you’d actually be able to secure a loan at those rates.
Your credit score, time in business, business revenues, condition of the equipment, and down payment will all affect the interest rate. The stronger your credit and business revenues, the lower your interest rate will be.
d. Funding Speed: Construction equipment financing doesn’t have as rigid of an underwriting process compared to unsecured loans. As such, you’ll be able to get funding with this type of business loan in as little as two business days.
However, there is an extra party in the mix here—the vendor that you’re purchasing the equipment from. You’ll want to make sure you have a quote or invoice from the vendor and that they can move quickly to get the equipment into your hands, once you have the funds from the lender.
What You Need to Apply for Construction Equipment Loan
If you find out that you and your business is eligible for heavy equipment financing, then the next step you need to take is compiling all of the necessary paperwork and loan requirements before diving into the heavy equipment financing application process.
Here are the documents you’ll need to have to apply for heavy equipment loans:
- Driver’s License
- Voided Business Check
- Financial Statements (showing revenue, expenses, and profits)
- Recent Bank Statements
- Business and Personal Tax Returns
- Equipment Quote or Invoice from vendor
The amount of paperwork you have to submit will depend on which lender you work with. For instance, a bank will require a ton of paperwork, but an online lender will require minimal documentation. At the same time, a bank will likely offer a better interest rate than an online lender, so there’s a tradeoff among time, cost, and effort.
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