Excavator financing

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Page written by Chris Godfrey. Last reviewed on October 17, 2024. Next review due July 1, 2025.

Excavators – also known as diggers or mechanical shovels – can be some of the most flexible and useful heavy machinery you can get.

Operated by industries as varied as construction, agriculture, forestry and mining, they can be the powerhouse of any business. However, diggers don’t come cheap and paying for this type of heavy machinery with working capital can often be prohibitive. Fortunately, there’s an answer to this problem: Excavator financing. Pay for the equipment as you use the equipment. Give your organisation the machinery it needs without hurting cash flow.

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What is excavator financing?

Excavator financing – also known as equipment financing – is a type of business loan used to support the purchase of new or used excavators. This type of financing gives organisations an alternative way to pay for one or more diggers without putting strain on working capital by buying heavy machinery with cash.

How does excavator financing work?

If your organization needs an excavator, you have two ways to get one: You can hire a digger from a heavy equipment rental agency, or you can buy or lease one. While hiring may be best if you only need an excavator for a short period and very rarely, the costs can rapidly add up if you use these machines a lot – easily reaching $5,000 a month depending on the model of machinery you hire. In the mid to longer term, this does not make sense. For businesses that need an excavator regularly or for longer periods, and like the idea of owning the equipment in the future, buying or leasing the machinery is a better way to go.

There are two types of excavator financing:

Finance (also known as an excavator loan)

Excavator finance is a straightforward business loan. You make a down payment on the excavator and then pay off the balance of the purchase price, plus interest, with regular payments over a fixed term contract. The digger acts as security for the loan. When the agreement comes to an end, the equipment is paid for and yours to keep.

Advantages of an excavator loan

Own the equipment outright when the contract ends
Add the machinery as an asset to your balance sheet from date of purchase

Disadvantages of excavator loan

Higher monthly payments because you are paying back the total digger price

Lease

An excavator lease is really a long-term rental agreement. Because you are only financing some of the purchase price, leasing typically has lower monthly payments than a finance/loan. With a lease, you make a down payment and then pay a regular sum plus interest each month to use the digger. At contract end you can either give the excavator back to the lender, renew the lease at a different cost per month, or buy the digger for the fair market value – this is commonly known as a ‘balloon payment’.

Advantages of an excavator lease

Lower monthly payments
Option to buy the machinery or lease a newer excavator at contract end can give you better financial flexibility

Disadvantages of excavator loan

Balloon payment could be more than the excavator is worth at contract end
Becomes a liability on your balance sheet

Should I loan or lease an excavator?

It depends on your business strategy.

Choose a loan if:

You want to own the excavator at contract end. Depending on how hard the equipment is worked and how many hours of use it gets, diggers tend to have good residual – meaning they hold their value well – so owning the machinery outright at contract end can be a good move. The majority of Australian excavator buyers choose to finance their purchase.

Or choose to lease if:

You want to move up to a newer excavator when your current contract ends without the hassle of selling your old digger first
You want lower monthly payments

Do I qualify for excavator financing?

Qualifying for excavator financing is determined by three key factors:

Strength of your personal/business credit. Most lenders will want a good credit score along with ‘depth’ – that is a long history of paying your bills on time. They may also want to see ‘comp credit’, which means proof that other businesses have extended credit to you and that you have had successful personal automobile finance before.
The length of time your business has been operating. Longer history improves your chances of loan approval.
Down payment: It’s possible to get excavator financing with no deposit, but generally, the more you offer to pay at signing, the better your chances of loan approval.

Typically, you will need to provide a preliminary bill of sale for each excavator you are seeking to buy or lease. The lender may also ask to see your business bank statements and other financial records. Note that some lenders may set a usage limit – total hours the machinery has been worked thus far – on used diggers. Additionally, it is unlikely that you will be able to get financing if the contract exceeds the estimated useful life of the equipment.

Top tip: Even if you have bad credit, or have been turned down elsewhere, it may still be possible to get the excavator financing you need. Contact Swoop today to discuss your situation with a bad credit expert.

Do I need a down payment to finance an excavator?

Possibly. If your business has been in business for several years and your credit and financial history are strong, you may be able to finance your next excavator without a down payment. However, newer businesses and those with spotty financial history and weaker credit will typically need to pay an initial deposit. This may vary from being equal to the first one or two monthly instalment payments up to 20% of the purchase price depending on your financial situation.

What is the interest rate on an excavator loan?

The interest rate on an excavator loan can vary depending on several factors, including the lender, the your creditworthiness, current market rates, and the terms of the loan agreement.

Generally, interest rates for equipment loans, including excavator loans, may range from around 4% to 20% or more, depending on these factors. Businesses with strong credit histories and financial profiles may qualify for lower interest rates, while those with less favourable credit may face higher rates to compensate for risk.

Additionally, lenders may offer fixed or variable interest rates for excavator loans. Fixed rates remain constant throughout the loan term, providing stability in monthly payments, while variable rates may change based on the market conditions.

What are the excavator leasing rates?

Excavator leasing rates can fluctuate significantly and are dependent on a matrix of many factors, including:

The price of the machinery
Your business’ credit profile, years in business and financial strength
The duration of the lease
The typical residual value of the machinery (what the digger is worth at contract end)
Known problems with the excavator you have selected
The industry you operate in
Even your business zip code can impact the rate you pay

Additionally, interest rates are constantly changing, and the costs associated with administering your finance will vary significantly from one lender to another.

What is the credit score required to finance an excavator?

Most lenders will want a minimum personal score of +640, although if you pay a larger deposit, it may be possible to get excavator finance with a score in the mid-500s.

Can I get an excavator loan with bad credit?

Obtaining an excavator loan with bad credit may be more challenging compared to securing a loan with a good credit history. However, it is not impossible to get an excavator loan with bad credit. Some lenders specialise in offering loans to businesses with less-than-perfect credit histories, although they may require a higher interest rates or additional collateral to reduce the risk.

Additionally, businesses with bad credit may improve their chances of approval by providing a larger down payment, demonstrating stable income and employment, or seeking a cosigner with a stronger credit profile to guarantee the loan.

Before applying for an excavator loan with bad credit, it’s a good idea to review your credit report, address any errors or negative items, and explore different funding options to find the most suitable loan terms for your situation.

Can I refinance an excavator loan?

Yes, refinancing an excavator loan is typically possible, similar to refinancing other types of loans.

To refinance an excavator loan, you would need to apply for a new loan with a different lender or negotiate with your current lender for better terms. The new loan would be used to pay off the remaining balance of the existing excavator loan.

Refinancing can potentially save money by reducing monthly payments or overall interest costs, improving cash flow, or providing more favourable loan terms. However, it’s important to carefully evaluate the costs and benefits of refinancing, including any fees, prepayment penalties, and the impact on your financial situation, before deciding to refinance.

How to apply for excavator financing

You should shop around for different financing offers before settling on a deal. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of excavator financing deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for business owners who have never taken out a dump truck loan before.

What you’ll need:

Excavator details including price and details of the seller
Your business details and financial records as required
Preferred type of financing – loan or lease
Contract length request

How long does it take to get an excavator loan?

The time it takes to secure an excavator loan can vary depending on several factors, including the lender’s processes, your creditworthiness, and the complexity of the loan application. In general, the process typically involves several steps:

Preparation: Before applying for a loan, you may need to gather necessary documentation, such as financial statements, tax returns, proof of income, and details about the excavator being financed.
Application: The application process involves completing paperwork provided by the lender, submitting required documentation, and potentially undergoing a credit check.
Underwriting: Once the application is submitted, the lender reviews the your financial information, credit history, and the details of the loan request. This process may take several days to a few weeks, depending on the lender’s workload and policies.
Approval: If you meet the lender’s criteria and the loan application is approved, the lender extends a loan offer outlining the terms and conditions of the loan.
Funding: After the loan offer is accepted, the lender disburses the loan funds, either directly to you or to the seller of the excavator, depending on the loan agreement.

The overall timeline to get an excavator loan can range from a few days to several weeks, with some lenders offering a faster processes.

What are the main reasons businesses get declined for a excavator loan?

There can be several reasons why a businesses may be declined an excavator loan, including:

Poor credit history: Lenders often assess the creditworthiness of businesses before giving loans. A history of late payments or bankruptcies may signal financial instability and increase the risk of loan default, leading to a loan application being declined.
Insufficient cash flow: Lenders evaluate a business’s ability to repay the loan based on its cash flow. If a business lacks revenue or profitability to support loan repayments, lenders may decline the loan application.
No collateral: Some lenders require collateral to secure the loan. If the value of the collateral isn’t enough to cover the loan amount or if the collateral is considered too risky, lenders may decline the loan application.
High debt levels: Businesses with high levels of debt may be viewed as carrying too much financial risk by lenders. Debt can strain cash flow and hinder the business’s ability to meet its financial obligations, leading to a decline in loan applications.
Unstable business performance: Lenders may decline loan applications from businesses with inconsistent financial performance. Big changes in revenue, profitability, or market conditions can increase the risk of loan default and lead to loan application rejections.
Limited business history: Startups or businesses with a limited operating history may face challenges getting funding due to a lack of track record or proven business model. Lenders may prefer to lend to established businesses with a demonstrated history of financial stability and success.

Get started with Swoop

Working with business finance experts can make all the difference when applying for excavator financing. Contact Swoop to discuss your borrowing needs, get help with your application and to compare top-quality excavator financing from a choice of lenders. Get the heavy equipment you need without putting strain on cash flow. Register with Swoop today.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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