Best Small Business Loans for Heavy Equipment Financing

Ezra Cabrera

Updated: September 15, 2021
heavy equipment financing


Key Takeaways

  • Not all types of equipment financing solutions can suffice for large purchases. If you are considering purchasing heavy-duty equipment to support your business, consider getting heavy equipment financing.
  • Heavy equipment financing is the best loan solution for purchasing construction and inventory-related equipment, from forklifts to tractors.
  • Some businesses may also opt for heavy equipment leasing in which the lessee pays for the amount of time they used a particular equipment to support temporary work. However, in this setup, the lessee has no right over the equipment they rented even if they are paying to use it.
  • There’s no guarantee that borrowers will get the full amount of the heavy equipment loan they are applying for, but if they have a favorable credit score and other supporting documents, they are likely to receive 100% of the loan.

Some business owners apply for heavy equipment loans even if they have the money to pay for their machines upfront. Why? Because they understand that running a small company is very unpredictable. The money they would use to pay for heavy equipment may be put to better use as a reserve for emergencies or for more value-adding investments like opening a new location.

Heavy equipment financing gives you the convenience and flexibility of having heavy-duty machines that keep your business operating without having to shell out a large amount of money outright for them. That’s why many business owners have relied and have used heavy equipment loans.

In this article, we’ll demonstrate what heavy equipment financing is and why it is the best loan solution for making large machine purchases

What is Heavy Equipment Financing?

Heavy equipment financing (also known as construction equipment loans) allow businesses like yours to borrow money for the purchase of large machinery and pay them on a schedule. This eliminates the need for huge upfront payments, which most small businesses usually are incapable of given their limited budget.

Heavy equipment financing is most commonly used to pay for any construction equipment that range from bulldozers, forklifts, tractors, and other construction and engineering equipment.


What are The Benefits of Heavy Equipment Financing?

Small business owners and managers need equipment to create their products, support their operations, and build their infrastructure. This is why they need a small business financing solution that’s dedicated for this need: heavy equipment financing not only suffices them with access to funds for the purchase of large machines. It can also be used to replace worn-out or age-old equipment before they cause permanent damage to the business.

If you are struggling with the same issues, getting heavy equipment financing will go a long way in improving the way you run your business. Here are the benefits you get with extra capital for heavy-duty resources.

1. Purchase New Equipment

If your business is new and you already found the equipment your business needs, heavy equipment financing can help you purchase them ahead of time so you can start meeting your goals and delivering customer demands. It’s also a good way of increasing your organization’s productivity and efficiency. If you’re doing things manually and don’t have the machineries necessary to make your operations run seamlessly, you’ll end up wasting both time and cash when inevitable human errors are made here and there.

2. Replace or Upgrade Old Machines

When your equipment is no longer working the way you expect it to, it’s probably time for an upgrade. Some companies turn a blind eye on worn-out equipment simply because it’s frustrating to repair, not to mention costly.

Instead of forcing older machinery to function like new, you can apply for heavy equipment financing to replace or upgrade your old equipment. This will save you time and money in repairing equipment. These big and new machines are the ones that need attention and investing. That’s why business entrepreneurs have used heavy equipment loans which you can do also.  Likewise, it gives you the confidence that your operations are smooth-sailing as your machines are in tiptop condition.

3. Makes You More Asset-rich

Getting heavy equipment financing makes you more asset-rich because you have heavy-duty machineries that are critical to growing your company. This could help attract new clients who value working with a company that prioritizes its operating needs.

Heavy Equipment Financing Loan Amount and Terms

Heavy equipment financing allows you to fund up to 100% of the cost of the machine you’re looking to get. Take note that there’s no guarantee that you will get the full amount you’re trying to apply for – this will still depend on a number of conditions, particularly your qualification.

For those who have low credit scores and low cash reserves, you can expect to pay a down payment to get the equipment. It’s best that you work with your lender to discuss the rates and the terms you’ll qualify for.

You generally won’t exceed the useful life of your heavy equipment, but your loan terms will ultimately depend on the type of equipment you’re getting and the lender you’re working with. Be prepared to answer the lender’s questions about your needs for the equipment and the frequency with which you plan to use it.


Heavy Equipment Financing Interest Rates

Just like with the terms and loan amount, your rates for heavy equipment financing will depend on a number of factors like your credit score (should be a minimum of 620), business experience, the equipment type, the condition (if it’s brand new or used), and your business’ industry. In general, heavy equipment loan rates range anywhere from 8% to 30%, but this will be determined by your lender.


Should You Apply for Heavy Equipment Financing now?

Small businesses that are growing rapidly need to secure their operations with heavy equipment. Getting heavy equipment financing will allow you to reap the benefits of heavy-duty machinery that will make you more efficient.

Best Small Business Loans for Heavy Equipment Financing

Equipment purchases can make up a huge chunk of operating expenses for any small business. This is why small business owners need to explore and utilize multiple funding options so they can finance their operations, especially when it comes to purchasing heavy equipment. In this article, we are going to cover three options available for small business owners as it relates to financing heavy equipment.

As with any financial underwriting and loan program, a smart small business owner should consider all available options available to them. By examining each option, you’ll have a better idea about how you can use equipment financing to support the needs of your small business.


Asset-Based Lending

An asset-based loan is a lending product based on the value of your business which serves as collateral that secures funding. Examples of assets that can be used toward an asset-based loan are real estate, inventory, invoices, or other equipment. By using an asset-based loan to cover the heavy equipment, or to utilize an asset-based loan to free up cash for other equipment expenses, asset-based lending can help your small business fund the acquisition of additional heavy equipment.

To secure an asset-based loan, the lender will have your property, inventory, equipment, and invoices appraised or audited. Typically, the valuation of the business determines the amount of money that will be applied to a line of credit. As the value of your company’s assets goes up or down, so too will your credit limit be adjusted.

With an asset-based line of credit, the heavy equipment itself can often act as the collateral to secure the loan. This makes asset-based lending a good option for small businesses that need this type of funding.


Equipment Leases

Equipment leases are another funding alternative for acquiring heavy equipment. Equipment leasing is generally like renting the equipment you need. You borrow the equipment from an equipment company and make payments over the term of the lease. At the conclusion of the lease, there are typically three options: end the lease and return the equipment; extend the lease and continue making payments and use of the equipment; or exercise a buy-back option which allows you to purchase the equipment outright.

Equipment leasing is a useful option for small business owners who need to utilize heavy equipment temporarily. By setting up an equipment lease, you can use the tools you need to get the job done without purchasing the equipment outright and having an unused, as well as an unproductive asset after a job is completed and your use for the equipment is no longer needed.


SBA 7(a) and CDC/504 Loans

You can also apply for SBA 7(a) and CDC/504 loans if you want to purchase equipment for your business. SBA loans are one of the most sought-after loans as it offers some of the most favorable terms for strong borrowers.

You can borrow up to 7(a) and 504 loans with low interest rates and longer repayment terms. In fact, the maximum interest rates for 7(a) loan ranges from 6% to 8% and 4% to 5% for 504 loans. If you’ve applied for a loan before, you’d know that this is one of the most competitive interest rates in the market. However, it’s not easy to qualify for an SBA loan. You need to prove that you are a strong borrower through your credit rating, your business’s financial health, and more. The requirements are specific to the lender you’re going to work with, so be sure to check out your options beforehand.

You may know 504 loans as real estate loans, but startup companies and small businesses can also use the funds for long-term equipment purchases. SBA loans are specifically designed to help small businesses obtain funding. However, the processing times usually take several weeks to months. With that said, SBA loans are not ideal for business owners who need immediate funding.


Equipment Loans

An equipment loan is a lump sum term loan that comes with a stipulation that the funds only be used for the acquisition of equipment. A loan is yet another option where you can finance heavy equipment, allowing you to make monthly payments over the course of the lease term rather than paying a large lump sum for a piece of equipment up front.

Why Work With SMB Compass to Get Heavy Equipment Loans?

SMB Compass has a proven track record in providing small business financing solutions. We will work hand-in-hand with you to ensure that you get the right equipment for your business. Our expertise is derived from our decades-long experience in working with various industries. This allowed us to make calculated decisions that will benefit your business.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

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