While almost all businesses have to manage the equipment’s cost, the equipment that construction businesses need is often quite expensive. Small businesses in the construction industry are often faced with the challenge of finding a good heavy equipment financing option.
The cost of forklifts, cranes, trucks, and trailers, or any other type of heavy equipment is often too expensive for most small business construction companies to afford outright. And typical bank loans or personal loans may not be suitable because of the equipment’s high cost.
This is where heavy equipment financing can come to the rescue of small construction companies.
But where can you obtain heavy equipment financing?
What type of construction equipment financing is best for your company?
Let’s take a look at some of your top options.
The Best Equipment Financing Options
|Amount||Repayment terms||APR||Fees||Min credit score?||Accept ITIN?|
|Camino Financial||$10,000 – $400,000||24-60 months||12% – 24.75%||5%||N/A||✔️|
|Equipment Financing Loans||$10,000 – $350,000||Up to 10 years||8% – 30%||TBD||600||❌|
|Lines of Credit||Up to $1,000,000||Revolving||15% – 25%||TBD||630||❌|
|SBA Loans||Up to $5M||10 years||7.5% – 10%||Up to 3.5%||640||❌|
|Leases||Up to $100,000||Up to 10 years||10% – 20%||TBD||600||❌|
Construction equipment is not only expensive but many times it also requires special training (or even a license) to operate.
Your Top 5 Equipment Financing Options
When you need machinery to keep your business going—or take it to the next level—you need it fast. Going without the equipment can stall your company’s growth considerably. Depending on the type of equipment you need, it could end up halting your projects altogether.
These funding sources are among the most popular equipment financing options you can access. Let’s take a detailed look at each one.
1. The faster and most accessible option: a Camino Financial loan
Perhaps your best heavy equipment financing option is a Camino Financial loan. We offer some of the most attractive loan terms, and we serve a wide range of customers.
To qualify for a Camino Financial loan, you can have an SSN or ITIN.
You need to own at least 50% of the business. Your company has to be in operation for at least nine months, with at least $30,000 in annual gross sales.
You also don’t need credit history to apply.
We offer small business loans of $10,000 to $400,000, with monthly repayment terms between 24 to 60 months. Our annual interest rates of 12% to 24.75% are fixed with a 5% origination fee.
We don’t charge any early payment penalties, and you can get your money fast—within two to 10 days.
In addition, after making 8 months of timely payments, you can graduate with Camino Financial. When you do this, you’ll qualify for better loan rates, which will make your heavy equipment financing even cheaper.
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2. Equipment financing loans
Many financial institutions, such as banks and credit unions, offer equipment financing loans to small businesses.
There are 2 financial products you will find: equipment financing and heavy equipment financing (the latter is what construction businesses most commonly need). Make sure to find a lender that fits your needs.
These equipment financing loans work similarly to other types of small business loans. You’ll be borrowing money from a financial institution to pay for the cost of the heavy equipment you need.
Some financial institutions may allow you to finance the machinery’s full cost, while others may require you to put a down payment—much like with a car or a house. You often won’t be forced to put up separate collateral for this type of loan because the equipment itself will serve as the collateral.
This type of loan typically has interest rates between 8% and 30%. Not too many people would qualify for that low end of interest rates, though. You’ll need to have a credit score of at least 600 to qualify, as well as be in business for at least one year.
Most financial institutions won’t accept ITINs on applications, and they won’t offer loans to people with no credit history.
Companies that offer equipment financing loans offer repayment terms of up to 10 years normally, though they won’t offer loans that stretch longer than the useful life of the equipment being financed.
3. Lines of credit
A line of credit works similarly to a credit card. You’ll open an account with a financial institution with a set amount of credit available for you to use. You can tap into this credit any time you need it.
You won’t get a full lump sum of money deposited into your bank with a line of credit. The positive of this is that you don’t have to use the entire line of credit that’s extended to you.
While a line of credit may work for your heavy equipment financing, there are some downsides. The first is the high-interest rates of between 15% to 25% (this rate will also depend on your credit score and history).
Depending on the financial institution, you can access from $10,000 to $1M with a line of credit, more than enough to finance the machinery you need.
Most lenders who offer lines of credit will not accept ITINs on the application.
When you tap into your line of credit, you’ll be required to pay a minimum monthly payment. There is usually no set term on a line of credit. You’ll just continue to be charged this interest rate as long as there is an outstanding balance. Therefore, the longer it takes you to pay off the line of credit, the more interest you will be charged.
A line of credit is a great alternative if your company makes regular expenses that require external capital, but if you only want it to finance machinery one time, it’s not a great option.
4. SBA loans
Loans offered through the Small Business Administration (SBA) are a good option for many small businesses. The most popular program they offer is the SBA 7(a) loan program, which extends up to $5 million for use on business equipment. The loans are offered through private financial institutions that work with the SBA.
Interest rates for these loans depend on the amount that’s being financed and the loan’s length. All loans are capped at an interest rate of prime plus a maximum markup of 4.75%. They range from a base rate plus 2.25% (for loans of $50,000 or more and a loan length of seven years or less) to a base rate plus 4.75% (for loans of $25,000 or less with a maturity of more than seven years).
This all means that your effective interest rate will likely be between 7.5% and 10% with today’s rates. This is all subject to change, though, as rates can vary. Each SBA loan comes with a 3.5% origination fee. Repayment terms for heavy equipment can be flexible for up to 10 years.
To qualify for an SBA loan, you need to meet the requirements for your business type and size.
You’ll need a Social Security number to apply, and you must have a solid credit history (640 and up).
There could be instances where leasing would be more beneficial than purchasing the equipment outright. If the equipment you need doesn’t have a long lifespan, then it may make more sense to lease it. Leasing also allows you to constantly upgrade your equipment, so you have the most up-to-date technology and features.
The downside, of course, is that you won’t own this equipment. You’ll simply be borrowing it from the company you get the lease from for the length of the loan.
So, while the cost of a lease may be cheaper on a monthly basis than a heavy equipment financing purchase loan, the trade-off is you will have to give back the equipment at the end of the lease—or enter into a new lease. And, in the long term, leasing might be more expensive than buying.
The typical lease period for heavy equipment is roughly three to five years. The interest rates will dramatically affect your monthly payment and could be anywhere from 10% to 20%. This will depend on your credit score and history.
You’ll also need an SSN to apply.
Typically, leases for heavy equipment cost roughly $40 to $60 per month for every $1,000 that the equipment is valued at. So, for example, if the equipment you’re leasing is valued at $50,000, then you would expect to pay between $2,000 and $3,000 per month.
With those types of monthly payments, you could very well finance the machinery you need with a loan (and it will end up being your property).
It’s Time you Finance the Construction Equipment you Need
Construction companies often need to purchase new equipment, but they don’t have as many options for heavy equipment financing loans. While some of the above options may work, they could come at a high cost, and not everyone will qualify.
Camino Financial offers great equipment financial loans to small businesses of all types. You don’t even need an SSN or previous credit history to qualify.
find out how we live up to our motto of “No Business Left Behind.”
Apply for a business loan with Camino Financial today.