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Equipment Financing: How Does It Work?

Commercial Equipment Leasing

Think of construction equipment financing as a type of business loan. With this approach, a business does not have to make perpetual lease payments on equipment or tie up precious cash to purchase expensive equipment outright.

For example, suppose you’re doing construction equipment financing. It lets your construction business obtain bulldozers, mini-excavators, dump trucks, motor graders, and other pieces of equipment right away without having to pay the full cost of each item immediately.

This type of financing is a smart way to get equipment while preserving a large amount of capital.

Construction Equipment Financing Example

Here’s a financing example using typical construction equipment loans.

• A construction business applies for equipment financing and gets approved for 80% over six years.

construction equipment financing options

• The total cost of the equipment the business plans to buy is $100,000. The loan covers $80,000, leaving the business to come up with $20,000 on its own.

• The business gets to keep $80,000 in its reserves for use toward expenses such as marketing, rent, employee training, and worker wages.

• The business makes regular payments that cover interest and the $80,000 loan principal.

• The lender might require a lien on the equipment or other business assets until the loan is paid off. Alternatively, the lender may accept a personal guarantee if the business owner has good credit.

• At the end of the six-year loan term, the construction business owns the equipment outright.

Equipment Financing Is Not Equipment Leasing

A construction equipment loan is not the same as a lease. In equipment leasing, the construction business rents the equipment for a set, agreed-on period.

After the term expires, the construction business must return the equipment unless a new lease is agreed upon or the business purchases the equipment.

Leasing does have its advantages, especially if a business constantly needs the newest equipment. However, it does mean continual payments and no ownership.

Benefits of Equipment Financing

Equipment financing is a savvy middle ground between tying up your cash to buy equipment and renting forever.

• Loans can fund in as little as two days.

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• Some lenders have programs for bad credit equipment financing.

• The loan-to-value ratio can be up to 100% sometimes.

• Interest rates may be as low as 4%, with the upper range being about 13% (lower than many credit card rates).

• The repayment time frame can be up to 10 years or even more.

• The business keeps most of its cash for other expenses.

• The business stays solvent and ahead of the game with the necessary equipment.

• The business fully owns the equipment eventually. It does not have to make continued payments like it would with equipment leasing.

How a Construction Business Qualifies for Equipment Financing

Each lender has different qualifications. Some even feature different programs so they can serve borrowers from various backgrounds.

For example, bad credit heavy equipment financing is possible with some lenders, while it is not with others. Lenders generally consider these variables:

• Personal credit score

• Business plan

• Operating requirements such as two years in business and annual revenues exceeding X amount

• Balance sheet or cash flow statement

how to qualify for equipment financing

• Business owner’s personal financial statements

The lenders themselves are diverse, and they include traditional banks and online lenders. (You can also finance equipment via credit cards.)

Online lenders are much more flexible when it comes to issues such as bad credit and limited assets. In fact, many startups and leaner businesses find more success with online financers than with traditional lenders.

Traditional lenders do offer somewhat lower interest rates, but a business needs to be especially flush with cash and assets to qualify. Also, the approval process takes much longer.

Get a 24-Hour Turnaround Time

Find out within 24 hours if you qualify for equipment financing. Get in touch with First Capital Business Finance today. We offer several equipment financing programs, including those for businesses with bad or challenging credit.

Our terms range from 12 months to 72 months (6 years). We don’t make you jump through hoops like traditional lenders are likely to. For example, you may need to show only your three most recent bank statements for proof of income.

It depends on the amount you need to finance and other considerations. We handle construction equipment loans as well as financing for plumbing, medical, restaurant, and wash plant businesses, among others.

Construction Equipment Financing | First Capital Business Finance

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