What is Heavy Equipment Financing?
Heavy equipment financing is used to help individuals or companies purchasing heavy equipment spread the costs out over time while building equity in the purchased equipment they will eventually own. Heavy equipment can be a major expense for businesses, and financing everything upfront can be tough. With the right lender, you can start benefiting from the investment right away, and only need to cover the costs gradually. Equipment loans come in many shapes and sizes, depending on how much you need and the state of your credit. For any business loan, an SBA loan is always worth considering. Otherwise, finding the right loan for you is something that comes with time and patience. Below we’ll talk about rates and credit requirements to help you get a sense of what’s out there.
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Rates for heavy equipment financing vary based on your credit score, and how long your construction company has been in business. Lenders will generally offer rates between 8% and 30%. If you go directly to the vendor of the equipment you may be able to secure a better rate.
Vendors sometimes offer as low as 4% when they consider financing more of a payment plan and less of a way to generate capital from you. It will be tough to secure a rate that lows if you don’t have a great credit rating, but if you find that banks aren’t offering you a rate you’re satisfied with, it’s definitely worth trying to go directly through the vendor.
Generally, you’ll want to want to have a credit score of at least 600 to get a decent interest rate on your loan. Even then, a credit score of 600 isn’t going to get you the best rates. If your credit score is lower than 600 it’s still possible to secure financing for your heavy equipment, but you should be prepared to pay pretty high interest and your lender may also expect you to put up collateral to guarantee that they make their money back on your financing.
You’ll also be required to submit your business’s financial history or your own financial history if you’re a new business. The lower your credit history the more cautious you should be when being considered for any financing. A bad financing deal can leave you paying a ton of interest for equipment that didn’t cost nearly as much originally.
There are plenty of borrowing options out there, though it’s important to be realistic with your expectations when looking at heavy equipment financing, and not to believe anything that seems too good to be true. By double checking the terms of every offer to make sure you know what you’re in for, you can be sure to find the best borrowing option for your business.