Page written by Chris Godfrey. Last reviewed on August 26, 2024. Next review due March 1, 2025.
Construction equipment – diggers, bobcats, cranes, dump trucks, graders, loaders, etc – is used by industries as varied as construction, agriculture, forestry, landscaping and mining. However, this kind of equipment does not come cheap and paying for it with working capital can often be prohibitive. Fortunately, there’s an answer to this problem: Construction equipment financing. Pay for the equipment as you use the equipment. Give your organisation the major machinery it needs without hurting cash flow.
It’s a question of efficiency. If your current construction equipment has reached the stage where repairs and maintenance are becoming more expensive and more frequent, or you find yourself having to take on costly short-term rentals for some equipment that you do not have, then it may be time to upgrade or enlarge your equipment pool. Additionally, if you’re taking on a special project that warrants buying or leasing a new piece of equipment, it may be worth doing so.
Ultimately, regardless of the reason you need new machinery, equipment financing is often a better way to obtain it than paying for new machinery out of working capital. An equipment loan takes the strain off your finances and can give you the option of obtaining better equipment than you could afford if you were paying with cash.
How do construction loans work? See below:
Types of equipment loan:
Equipment loans fall into two classes – business loans to buy the equipment, and leases that are long-term equipment rental agreements. Let’s look at the differences between these types of financing:
Business loans to buy the equipment:
Although many types of business loans are suitable for buying construction equipment, they all work with the same basic format: You borrow a sum of cash and then repay it over time. Interest charges and fees are added to the principal amount you borrow, and the lender may retain a lien on the equipment during the term of the loan. At contract end you’ve paid off the loan and you own the equipment outright.
Advantages of business loans to buy construction equipment:
Disadvantages of business loans to buy construction equipment:
Lease the equipment with a finance or operating lease
Leasing works differently from business loans. With a lease, you’re not buying the equipment, you’re taking on a long-term rental. Depending on the type of lease you choose, (finance lease or operating lease), you may have the option to buy the construction equipment at contract end for a pre-agreed sum, (which could be as low as R1 but is typically the residual value of the equipment – which means what it’s worth in used condition).
Because you’re not repaying the whole cost of the equipment, leasing usually requires lower monthly payments than a business loan. You may also pay a smaller down payment – perhaps equal to one or two month’s repayment instalments.
If you choose not to buy the equipment at the end of the lease, (or you have chosen an operating lease that forbids it), the equipment goes back to the lender. You would then need to take out a new lease and obtain new equipment. (Which could allow you to obtain more modern and up to date machinery).
Some lessors (lenders) may give you the option to extend the lease if you prefer to keep the equipment but do not wish to pay the residual.
Advantages of leasing construction equipment:
Disadvantages of leasing construction equipment:
Although every lender will have their own qualifying criteria, some fundamental rules apply. In most cases, lenders will need to see:
You will also usually need to provide bank statements, tax returns and other financial documentation. However, even if your credit score is weak and/or you’ve been turned down elsewhere, it may still be possible to get the equipment financing you need. To find out if you qualify before you apply, contact Swoop to discuss your funding needs with a finance expert.
Yes. Although construction equipment financing is more readily available from online lenders and specialist heavy machinery finance houses, some banks and credit unions may provide the funding you need. However, traditional lenders are usually much slower to provide financing than alternative lenders and you may have to provide significantly more documentation to get an approval.
Probably, but you should expect to pay higher interest charges and you may be limited in the amount you can borrow. You may also have to provide a larger down payment and perhaps a personal guarantee. This will make you personally responsible for the debt if your business defaults on the loan.
Obtaining a construction equipment loan or lease is no different to obtaining most other forms of business finance – preparation is key:
It depends on the type of financing you choose. Equipment leasing and some business loans use the equipment as collateral and no other collateral is required. Alternatively, other business loans, such as a straightforward business term loan, may require you to provide collateral to protect the lender – usually commercial property or other business assets.
Interest rates for commercial equipment loans and leasing can be anywhere from 6% to 35% APR and are dependent on the type of loan you choose, your credit history, and the sum you need to borrow.
No matter if you’re seeking your first equipment loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality equipment financing deals from a choice of lenders. Give your business the equipment it deserves. Register with Swoop today.
Written by
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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