There aren’t many industries more equipment-reliant than construction. Try as you might, you simply can’t lift a 200-pound truss very high with your bare hands. And it’s an accepted fact that breaking boards over your knee is much less effective than sawing through them.
So it’s likely that if you own a construction business, you’re well-acquainted with the costs of equipment. And it’s not always a pretty picture. Research shows that material and equipment costs have been on the rise for years now. If the trend continues, as many suspect it will, the expensive Bobcat you bought last year would cost even more this year.
Whether you’re looking for power drills or front loaders, knowledge is definitely power. It’s important to know the ins and outs of construction equipment financing and heavy equipment financing. New businesses often benefit from the extra funds these types of small business loans can supply. And even the largest and most tenured company can easily find themselves in a bind when crucial equipment breaks down or a new equipment purchase is necessary to facilitate a major project.
“Whether you need to purchase computers for a growing team or invest in specialized machinery or vehicles, you’ll need to consider how you will pay for that equipment,” explains a financing report from the US Chamber of Commerce. “A business equipment loan can help you quickly obtain working capital to buy or lease the items you need for your business. You’ll be able to manage your cash flow seamlessly, as this financing will allow you to spread out your payments over a longer period of time.”
If you go to a big bank and ask for equipment financing, you may get the cold shoulder. The unpredictability of construction projects tends to make lenders skittish, so don’t take the rejection personally. It’s just the nature of the beast.
Your best bet will be to seek construction equipment financing from a lending marketplace that connects you with lenders who understand the industry and are willing to partner with you. Construction equipment loans from marketplaces have dollar amounts as high as $5,000,000. The interest rates start around 7.5%, and the repayment terms are typically 1–5 years.
The financing can be used for just about any type of equipment related to your business, including vehicles, trailers, and power tools. But you can also use the money for expenses that aren’t quite as obvious, such as computers, desks, bookkeeping software, project management software, or even solar panels for your office roof.
Before you can qualify for construction equipment financing and heavy equipment financing, lenders will verify that your business has been operating for at least 12 months and brings in $50,000 or more each year. A credit score above 659 will also be required.
As for collateral, the equipment you are purchasing will be used to secure the loan. This collateral helps streamline the application process and could even make it so you won’t need to provide a down payment. The downside is that in the case of a default, the lender would take possession of your equipment.
It’s important to remember that you always have options when it comes to small business financing. Here are 3 other forms of financing you should consider as you approach construction equipment purchases:
Many small business owners, including those in the construction industry, prefer the reliability of term loans. These loans have been around for centuries and can provide amounts as large as $2 million. Depending on your unique situation, you can qualify for rates starting as low as 6%. The repayment term will usually go up to 5 years.
Term loans are versatile enough for all manner of expenses. For example, you could use the funds to fix your excavator or even to hire additional employees.
This type of financing is like the smaller, speedier version of a term loan. Although the dollar amounts are lower, topping out around $500,000, you can get that money in just a couple of days. When your business is in a stressful situation, this expediency can be priceless.
Be aware that short term loans come with a steeper price tag. The interest rates can be among the highest on the market, and the repayment terms usually range from 1–3 years. But if you’re in a situation where speed is of the essence, this solution can be ideal.
While most forms of small business financing involve loans with a lump sum, a line of credit offers a revolving form of financing. Think of it as a credit card, minus the card.
You can qualify for up to $500,000 with a business line of credit. Once your application has been accepted, which usually only takes 7–10 days, you’ll have unlimited access to the agreed-upon amount of money. If you need to buy a $500 table saw, simply use $500 from the line of credit and then pay back that specific amount. As soon as it’s repaid, you have the entire credit amount ready and waiting for the next use.
Qualifying for a business line of credit requires you to have a credit score of at least 560. Additionally, your business should have 6 months or more under its belt and at least $50,000 in yearly revenue.
Just as every tool is different, every construction business has its unique characteristics and functions. Some small business owners may find that construction equipment financing is the optimal way for them to fund their businesses. For others, the flexibility of a term loan or line of credit could prove to be the better fit.
What matters is that you research all your options before signing on the dotted line. By taking a deliberate approach to your financing, you’ll avoid many of the stumbling blocks that trip up your competition. And you’ll position your business to thrive in the coming months and years.