Tips on how to finance heavy equipment for your business

It’s rare that construction companies, at least when they’re starting out, are in the position to pay out that amount of cash. With site overheads, staff, materials and all the other expenses that come with running a construction business, investing thousands into brand new equipment is too much of a stretch. That’s where leasing and loaning comes in. Of course, the most obvious benefit is the fact that you won’t have to fork out the entire amount for the heavy equipment. However, there are also several other benefits of taking out an equipment lease or loan that you may have not considered: 

• It’s far easier to take out equipment-specific finance than an unsecured business loan. 
• When taking out a loan, you own the equipment on purchase. 
• Leasing can give you access to cutting-edge equipment. 
• You can access the equipment without a significant effect on your cash flow. 
• Often equipment financiers are experts in heavy equipment too – so can give you advice on the best equipment for your needs. 
• Financing reduces the amount of burden on the business owner in terms of disposal, obsolescence (ensuring you have the right equipment for your needs) and asset management. Giving you more time to focus on what’s important. 

Now, this is perhaps your biggest choice when it comes to financing your heavy equipment. Both have their pros and cons, but ultimately the choice should really rest on these questions:

• How long do you need the heavy equipment for? 
• How much capital have you got to invest in the equipment? 
• Do you need to own the equipment outright? 

Leasing gives you access to the latest equipment without the hefty downpayment. However you won’t own the equipment yourself, it’s just on loan to you for a set period. This means that interest rates can be higher and you will have to pay contract cancellation costs if you no longer need the equipment before the end of the lease period. At the end of the lease period, if you do want to purchase the equipment, there is usually an option to purchase at a discounted rate. 

Alternatively, applying for a loan to help you pay for the equipment itself does require a downpayment. But, at the end of the payment period, you will own the equipment yourself. This is the best option if you have the capital to back you up and know that you’ll be using all of the equipment again on other jobs. 

Once you’ve chosen whether you want a financed lease or loan, you have to consider what and how much you can afford. We would advise looking at the following areas of your business including: 

• Tax: your tax situation and ensuring everything is in order. 
• Revenue: your current and projected business revenue.  
• Business credit score: your business credit score.  

If all three areas are in good shape, you should be good to go when it comes to taking out a loan for your heavy equipment. However, if you’re unsure whether you’re in a position to take a lease or loan out for all of the equipment you need, get in touch with your accountant. They’ll be able to get all of your business assets and data in order and advise on the best way to proceed forward with the financing process. 

Once you’ve applied and have been accepted for a loan or lease term, you can work with your provider on the term length. This should be in parallel to the equipment’s life expectancy. In most cases, the terms of the loan will not exceed the life expectancy of the equipment. The longer your term or the smaller the deposit (for loans), the higher the interest. So just be sure to assess this thoroughly to see what you can afford. 

Once all of this is signed off you should be able to purchase or receive your lease equipment within a week (for most providers). Again make sure to confirm this with them to ensure you have the equipment at the time you need it.