Construction Equipment Financing: How to Get a Loan for Heavy Equipment

Business Guides

Jacques Famy Jr
Review By Todd Millman

Construction contractors oftentimes are looking to expand their construction business with construction equipment. Construction contractors need heavy equipment and tools to complete a specific customer's job or to be able to bid on certain jobs. Whether purchasing used or new equipment, you need the money to purchase the right equipment to expand or replace worn-out equipment.

Choosing to lease or finance may be the best decision; not only is applying for construction equipment financing easier than you think, but several great construction equipment financing options are available to fit your construction business's unique funding needs. This article will also discuss 6 reasons construction companies need to consider equipment financing as an advantage.

Flexible Construction Equipment Financing Solutions

Proper equipment is essential for any construction contractor's business to succeed. Acquiring construction equipment financing for purchasing heavy equipment can be costly. Construction contractors can use their cash reserves to pay large sums up-front or to finance by smartly utilizing various construction equipment financing options. Instead of paying hefty prices all at once, construction contractors can extend payments for new or used construction equipment over time, thanks to various options to finance.

Financing Options for Financing Heavy Equipment

Funding options typically cover nearly every piece of construction equipment in the industry, including heavy equipment, standard construction business equipment, and operating construction equipment. As a result, businesses can take advantage of these financing solutions for construction, making use of various lending options and lease contracts tailored for their needs.

The following is a list of financing options that amount from $20,000 and up.

  • Heavy Equipment Leasing
  • Heavy Equipment Loans
  • Working Capital Loans
  • Short-Term Business Loans
  • Long-Term Business Loans
  • Business Cash Advance

What is Heavy Equipment Financing and Leasing?

Several flexible funding solutions are available for construction companies looking to borrow money for equipment. Construction equipment financing encompasses options like skid steer financing and backhoe financing. This financing agreement involves using the construction equipment as collateral to secure the funding. Working closely with the equipment vendor, lenders like banks may even offer up to 125% financing, including soft costs like installation, tax, and freight fees. With a solution like Commercial Fleet Financing, you're not just selecting a funding avenue, you're joining a community, playing an integral role in driving the success of construction businesses.

Equipment leasing, a remarkably beneficial option, especially for construction equipment or trailers, proves extremely valuable for small businesses, startups, and newer firms. These businesses may not possess any other collateral beside the construction equipment, making such agreements more suitable. The versatility of these options propels businesses forward in the ever-changing world of fleet financing and construction equipment finance.

Construction Equipment Leasing

A subset of equipment financing is heavy equipment leasing or rent-to-own programs. Similar to car leasing programs, this type of leasing allows a company to make payments on equipment rentals through a leasing company. Instead of paying thousands of dollars in upfront costs, leasing allows construction companies to benefit from purchasing construction equipment without depleting cash on hand.

Highlights of Construction Equipment Financing

  1. Minimal Paperwork Required
  2. All credit accepted from excellent to poor credit
  3. Funding in days, not weeks
  4. Repayment Terms from 2 to 5 years
  5. Affordable Monthly Payments
  6. Finance with down payments starting at 5%

Benefits of Construction Equipment Leasing & Financing

  • New and or used construction equipment can cost tens of thousands of dollars – a price too high for many companies to pay upfront.
  • Financing, particularly balloon payments or lease options, allows business owners to free up cash flow, assist with taxes, and benefit from equipment financing tax incentives.
  • No matter the size or price of your construction equipment, considering smart financing options such as a purchase option lease, can effectively cover your costly expenses while stretching out the lease term.
  • The end of the lease term might even bring rewards of additional options like a zero buyout at end of lease, discounted purchase or renewal of the lease, adding a solid line of flexibility to your business operations.

Requirements for Construction Equipment Financing

The good news is that when securing heavy equipment financing for your construction business, the finance requirements are flexible, and you’ll need to provide less documentation than traditional business finance options to gain lender approval and funding. This gives you the opportunity to leverage equipment financing transactions in a way that works to your advantage. This flexibility is largely dependent on your qualifications, the equipment financing rates, and the expertise of the financing partner you choose. Known for their variety of financing options including construction equipment loans, they also offer flexible payment options like balloon or seasonal payments and even equipment leaseback transactions.

  • Easy online application
  • 3 months' Business Bank Statements
  • Construction Equipment Invoice from Seller
  • Down Payment
  • Additional stipulations may apply based on individual bank financing procedures. These could concern aspects like your credit, cash flow, business experience, equipment type, and condition.

In some cases, to qualify you may need to meet certain credit score thresholds as well as business operation period and revenue conditions. This is especially crucial because even though you may access construction equipment financing with bad credit, you'd likely encounter higher interest rates. This makes finding a business financing advisor who has attractive options for borrowers who may not qualify for other forms of financing so critical.

Learn more about loan eligibility requirements for equipment finance options through AdvancePoint Capital – a financing company with a wealth of expertise in the construction industry and competitive construction equipment loan rates.

Alternative Construction Equipment Financing Options for the Construction Industry

The construction industry requires specialized equipment to complete projects effectively and efficiently. However, purchasing or leasing equipment can be a significant expense for small businesses.

Alternative equipment financing options can provide a cost-effective solution, offering flexibility and manageable repayment terms. Below are some of the best alternative construction equipment financing options available to small businesses in the construction industry.

1. Short-Term Small Business Loan for Construction Companies

Short-term business loans (working capital loans) are financing options that provide a fixed amount of money with a fixed cost, paid back over a term from 6 to 18 months. These loans, including trailer financing, serve as excellent options for small businesses, particularly within the construction sector. The machinery, trailers, and heavy equipment acquired can typically be used as loan collateral, simplifying the qualification process.

Much like their long-term counterparts, these working capital loans are vital not only for financing business operations but also for leasing purposes. However, with lower revenue requirements, they become a more attractive alternative for construction companies that require trailer and heavy equipment financing.

Highlights of Short-Term Loans:

  • Excellent to poor credit score considered. No minimum credit score.
  • Loan amounts as little as $10,000 up to $500,000
  • Lower monthly or annual revenue requirements than those of traditional loans
  • Fast and simple application process with the same day to next-day funding
  • No down payment is needed when you finance equipment or trailer purchases. The trailer or equipment can be used as collateral in many transactions.
  • Flexible use of money for business purposes, catering to the unique needs of the construction industry, including opportunities for trailer financing.

2. Long-Term Construction Equipment Loans

A long-term small business loan is defined as 2 years or greater in repayment length. This financial option is especially favored by construction companies that heavily rely on machinery and frequently turn to heavy equipment financing companies for long-term financing assistance.

Long-term small business loans offer a fixed lump sum upfront that’s repaid over an extended period. The costs are based on a principal and interest rate. With construction companies often depending on heavy equipment such as forklifts, bulldozers, equipment construction dump trucks, and cranes, these loans have emerged as a preferred solution. These construction equipment loans are particularly useful for businesses needing to expand operations and invest in such machinery given their substantial costs.

Highlights of Long-Term Business Loans:

Rates: Competitive rates. Interest rates start treasury index plus 1% to 2.5%; currently, 8.5%

Terms: 2 to 10 years

Fees: Origination fees are 0% to 3%

Payment: Monthly or bi-weekly payment options

Lender Credit Score Requirements: All types considered; good to excellent preferred

3. Business Cash Advance

While technically not a loan, a business cash advance allows you to leverage future sales for instant cash flow. This solution proves beneficial whether it's a heavy equipment purchase, repairs, or even in scenarios of leasing or renting equipment for a specific period. This option can present a fixed percentage of overall sales for rapid access to capital. Especially for businesses with weaker credit scores yet requiring immediate cash, this method can be quite effective.

Highlights of Business Cash Advance

Rates: Factor rates from 1.09% up to 1.45%

Repayment Terms: No term limits. Payments continue until fully paid based on designated percentage collection methods and hinge on future sales.

Fees: Origination fees that range from 0% to 5%

Payments: Offering weekly or daily payment options

Credit Score Standards: Accepts poor to excellent credit scores; all considered.

Minimum Monthly Revenue: An income of $10,000 per month required

Processing Time: Provides same-day to 24-hour funding.

How Equipment Loan Benefits the Construction Industry

1. Financing Equipment Made Easy

Financing equipment is necessary for the construction industry to grow and add customers or take on additional jobs. When sourcing for a specific piece of equipment, whether it's a skid steer or a bulldozer with a projected lifespan of 10,000 hours before it requires repairs, you don't want to venture into time-consuming equipment lease agreements or loans. Your goal is to advance your business swiftly. Thankfully, applications for construction equipment financing, including those for a skid steer, and the related processes are designed for efficiency, boasting a fast turnaround time.

The primary deciding factor, be it's a "small ticket" or "big ticket" purchase like a skid steer, is directly determined by the equipment's price. It's important to consider factors such as the lifespan of the equipment, its frequency of use, and the expected return on investment before opting between traditional loans, leases, and lines of credit— each offering unique financial pathways.

a. Small Ticket Heavy Equipment Financing and Leasing

The process is relatively quick and easy if you want to finance equipment up to $200,000. In fact, it can often come with a short turnaround time so that you can access what you need when you need it. The requirements from above apply to this situation because they impact how fast the application process goes.

How Equipment Loan Benefits the Construction Industry, Drone shot of trucks lined up

b. Big Ticket Heavy Equipment Financing and Leasing

The financing process gets slightly more complicated when you’re looking to invest in equipment over $200,000. Simply provide more information to the finance institution, and remember that you can also use the equipment as collateral. The process may take a bit longer than small-ticket purchases, but as long as your business fits the finance requirements, you’ll get access to the equipment funding needed in a short period.

2. Increase Working Capital

Since most construction businesses occasionally experience cash flow shortages, it’s vital to have working capital loans to leverage instead. This finance option allows businesses to rely on equipment financing options, a method particularly advantageous when it comes to purchases of construction machinery. These might include forklifts, cranes, and other heavy machinery, which all require special training or licensing to operate.

By using equipment financing, businesses can prevent the drain of cash reserves needed to cover all additional expenses.

3. Stay Up-To-Date With the Best Construction Equipment

Technology is constantly evolving, so businesses must also make modifications to stay current. With equipment financing, your company can access the latest construction equipment like bulldozers, excavators and even crane trucks, often used in excavation projects, to perform at a top-tier level and replace worn-out machinery.

New, state-of-the-art equipment, especially heavy machinery such as bulldozers, excavators, and crane trucks comes with outrageous upfront costs. While it's often impractical, if not impossible, to purchase this equipment outright with cash flow, many businesses ranging from building maintenance to excavation companies opt for financing options. Instrumental options like small-business loans enable you to leverage the new equipment as collateral. This not only gives you access to new or used machinery such as crane trucks but also allows you to finance it, with repayment terms ranging from 36 to 84 months.

4. Free Additional Lines of Credit

Instead of applying for a large business financing option to cover construction-related expenses, an equipment loan restricts the borrower to only using it for heavy construction equipment. This includes heavy machinery used for tasks from utility contracting to gravel production. This ensures that there isn't a working capital shortage without another finance option available. If a working capital shortage occurs and your company already has an equipment lease, particularly in sectors like highway construction, bridge and tunnel construction or gravel production, you can apply for a business loan for additional funding and not be over-leveraged.

5. Explore New Equipment Tax Savings

Use tax incentives to your benefit by thoroughly understanding the tax laws surrounding the finance of company equipment.

It's essential to also refer to the FAQs section where frequently asked questions on tax incentives related to equipment leasing are addressed.

For example, part of your agreement to the terms listed by the leasing finance company is that you’ll pay monthly payments with added interest on your construction equipment.

6. Tax Deductible Incentives

Did you know that the interest you pay is usually tax-deductible, which can provide tax savings? However, the tax benefits don’t end there since some finance lease agreements allow you to write off the equipment lease payment as a business expense. Consult your tax advisor to ensure your construction company gets maximum benefits from equipment leasing finance programs.

7. Expense Planning

After deciding to apply for construction equipment financing, you can incorporate your monthly payments into your company’s overall expense planning. This option allows you to start making a profit using your updated equipment, so there is a decreased likelihood of downtime and significant financial dips. The same cannot be said when purchasing costly equipment outright. To keep your business secure, you must balance adequate cash flow and working capital by choosing to finance equipment.

8. Budget With Confidence

To keep your business functioning at maximum capacity, you need a concrete budget plan to avoid cash flow shortages, formulate invoice programs, regulate equipment repairs and purchases to avoid issues with worn-out equipment and monitor all additional monthly expenditures. Then, depending on your chosen equipment financing, you can add the monthly payments to your essential lists.

Frequently Asked Questions

How long can you finance construction equipment?

The repayment length will depend on the business equipment, financing option, business credit, and profile. Equipment leasing is typically 2 to 5 years.

How hard is it to finance heavy equipment?

Financing equipment has become easier to acquire with the advent of new business funding options.

What is the average interest rate for an equipment loan?

Not trying to avoid the question, but interest rates vary wildly in the construction industry. Equipment type, age, condition, creditworthiness and ability to repay will impact offers greatly. Rely on the term sheet or quote and make sure you compare offers.

Apply for Construction Equipment Financing Today

If you’re looking to grow your construction business and add customers, consider an equipment leasing and financing provider like AdvancePoint Capital to offer funding solutions and provide you with the tools necessary to make a good finance decision. We have a long history of providing equipment financing to contractors and the construction industry.

Get a quick quote to cover new construction equipment today and keep competing with the ever-changing construction industry.

Jacques Famy Jr

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