In this article:

• What's the difference between heavy equipment leasing & loans?
• Where to get financing: Heavy equipment financing companies
• Equipment financing rates and terms
• How to apply for heavy equipment financing
• Can you get equipment financing if you have bad credit?

Purchasing heavy equipment for your construction business can be expensive. One way to lower the cost is to buy used equipment. To pay for it without reducing your free cash flow or wiping out your cash reserves, construction equipment financing can be a smart option.

“It’s very advantageous for a customer who may be capital strapped and wants to reserve liquid capital for something else, like buying raw materials or hiring staff,” said the manager of used equipment sales at United Rentals. And, he adds, “the rates are competitive right now.”

Whether you’re financing a forklift, a boom lift or an excavator, heavy equipment financing can also offer tax benefits, Cook noted. “In years past, Section 179 of the tax code provided a tax break using an accelerated depreciation on a capital expenditure.” Check with your tax advisor about the current tax advantages of construction equipment financing and how it might reduce your taxes by lowering your taxable income.

What's the difference between heavy equipment leasing & loans?

Construction equipment financing can be done through a lease or loan. With a lease, you pay a monthly fee, similar to renting, but with the option to purchase the item at the end of the lease term.

At the end of the project, you can decide if you want to buy it or turn it back in if the equipment won’t be used on a consistent basis going forward. 

With a loan, your monthly payments go toward the purchase, and you own the item outright at the end of the loan term.

The better financing option for you will depend on the type of equipment you need and how you’ll be using it. If you need a machine for a short-term project, leasing may make more sense. Leases are also popular with equipment that becomes outdated quickly and needs to be replaced more often.

If you’re investing in a forklift or skid steer that you’ll use on every project, on the other hand, you’re probably better off taking out a heavy equipment loan. Once you purchase the machine, it will become an asset listed on your balance sheet.

Where to get financing: Heavy equipment financing companies

You have a few options for obtaining a lease or loan. Traditional banks, credit unions and online lenders offer financing for new and existing customers. Equipment vendors may also offer financing through a financing partner. Customers who purchase used equipment from United Rentals, for example, can apply for financing directly on the website.

When shopping for a heavy equipment loan, it’s important to compare rates, terms and fees, just as you’d do when financing a car or home. One good question to ask is whether you can finance the warranty as well as the equipment. Some financing companies allow you to roll the cost of the warranty into the sale price and loan. United Rentals’ financing program through Captive Capital includes both warranty and freight costs.

Equipment financing rates and terms

Interest rates

With a heavy equipment loan or lease, interest rates and terms vary. Interest rates are based off the prime rate, which fluctuates over time. But lenders make interest rate decisions on other factors as well.

“It will also depend on the customer themselves, their credit rating and the amount of equipment they're purchasing,” adds the used equipment manager.

In some cases lenders may even offer 0% financing, which means you pay no interest.

Loan terms

Terms typically range from 12 months to six years and may depend on what you’re purchasing. Many lenders won’t offer a loan that exceeds the useful life of the equipment. Choose a term based on the monthly payment you can afford — longer terms mean lower monthly payments, though a higher overall cost.

While certain customers may qualify for a loan that covers 100% of the purchase cost, some lenders may require a down payment, especially for borrowers with lower credit ratings.

How to apply for heavy equipment financing

Financial institutions consider the following factors when deciding who gets approved for a heavy equipment loan:

• Credit score
• Business revenue/cash flow
• Down payment

The application process for construction equipment financing can usually be completed online or by printing out the application and mailing or faxing it in. You can also apply for a loan in person at a traditional bank or credit union.

What documents do I need to apply for financing?

Different lenders have different application requirements, but applicants typically must provide identification (such as a driver’s license), a social security number, a corporate ID number if applicable, bank account statements to demonstrate cash flow and business or personal tax returns. If you’re using the equipment as loan collateral, you’ll need to provide information from the vendor on the piece of equipment you’re purchasing.

How long will it take to find out if I qualify for financing?

The financing company will run a credit check. Approval from some lenders can happen in 24 to 48 hours, although bank loans may take up to 10 business days. Customers who apply for financing through United Rentals typically hear back within 24 hours of filing a complete application and supporting documents.

Can you get equipment financing if you have bad credit?

All businesses have their ups and downs. If a down period negatively impacted your credit score, it doesn’t necessarily mean you won't qualify for a loan or lease.

Traditional banks typically have minimum credit score requirements, but some online lenders may be more flexible. They often examine a company’s years in business, annual revenue and current market conditions in addition to its credit score and may provide equipment financing to individuals or businesses with low credit scores. Interest rates might be a little higher than rates for people or businesses with excellent or good credit, but those with lower credit ratings can sometimes qualify.

If your credit is poor or fair (all lenders have their own credit score criteria, but scores below 630 are generally considered poor), you may have a better chance of being approved for a heavy equipment loan than you would for another type of loan. That’s because the equipment serves as collateral for the debt. If you aren’t able to make the payments, the lender can repossess the item and liquidate it to recover the loss.

Financing used heavy equipment can ensure your company has the machines it needs to complete projects on schedule and win new contracts while preserving cash and working capital. By choosing well-maintained equipment with useful life left and taking advantage of low equipment financing rates, you can score some bargains and have money left to run your day-to-day operations and invest in other areas of the business.

Stephanie Vozza is a writer who specializes in small business, real estate, and finance. She is a regular columnist for FastCompany.com. Her byline has also appeared in Inc., Entrepreneur, and Forbes.