Investing in equipment is important for business growth as it helps employees to work fast while reducing manual repetitive work. However, buying equipment is a capital intensive activity, that’s why businesses opt for equipment financing.
What is Heavy Equipment Financing?
Heavy equipment loans refers to financial assistance that is given to business, either in form of a loan or lease, to acquire major pieces of machinery. A loan is a bit different from a lease. What is their difference?
A loan refers to a financial facility that allows you to borrow funds (In this case, to finance the purchase of business equipment) from certain lenders then repay the amount plus interest over a specific period of time. On the other hand, equipment leasing refers to borrowing a piece of equipment then paying for it as you use it. In short, leasing is more or less similar to renting business equipment.
Despite the fact that equipment leasing is similar to renting, you may have the option to buy the equipment after using it for long periods of time. This can be done once you have used the equipment successfully for a long period. In such cases, the cost of buying the already used equipment is usually much lower than the cost of buying a new piece of equipment.
Similarly, you can decide to rent out the equipment under a lease agreement. This makes sense if you have already paid for the lease charges but have no use of the equipment during certain times.
For equipment financing, below are the difference between heavy equipment loans and heavy equipment leases:
1. Heavy Equipment Loan
- You’ll need a sale of goods agreement
- The monthly installments to pay may be fixed or variable
- Ownership of the equipment remains with the buyer after paying the last installment
2. Heavy Equipment Lease
- You’ll need a rental agreement
- The monthly installments you’ll have to pay every month will be fixed
- At the end of the rental contract, ownership of the equipment remains with the owner.
How Can you Qualify for Equipment Financing Loans?
Not all persons or businesses can qualify for business heavy equipment loans. Lenders have to consider various issues to decide whether they’ll award you with the loan or not. Two main issues they’ll consider are:
- Your business’ financial standing and performance
- Your business and personal credit score
Personal credit scores may not play a big role in deciding whether to award you with heavy equipment loans or not, it’s important that you take care of it. To improve your personal credit score, you’ll have to ensure that you repay your existing loans in time, as well as ensuring your debt to utilization ratio is good. By clearing your existing debts in time, you improve your chances of qualifying for a loan; increase your loan limit, or both.
Secondly, most lenders will look at the number of years your business has been in operation. As such, businesses that have been in operation for many years will stand a better chance of securing heavy equipment loans.
In any case, the ultimate trick to secure heavy equipment loans is to prove to the available lenders that you have the ability to repay their loan on time.
How to Apply for Heavy Equipment Loans
Applying for heavy equipment loans is rather straightforward. To get the loan, you’ll have to go through the following 3 steps:
- Fill a Form – You simply have to fill a form to start your heavy equipment loans application process. These forms are available online and are easy to fill.
- Connect with a Specialist – To determine what equipment and loan will be ideal with you, you’ll have to connect with a specialist. The specialist will assess your business needs and determine what equipment is ideal for you, and what supply or manufacturer you should buy the equipment from.
- Funding – After the two processes are done and approved, the funds transfer will be made to your bank account.
Benefits of Equipment Financing Loans
Equipment financing loans have several benefits. These include:
You can acquire or lease new equipment that has additional safety features. This will help you and your staff stay safe. You can also replace pieces of equipment that have become obsolete and pose a safety hazard to you and your team.
The purchase or lease of a new piece of equipment can reduce your tax burden. As you make use of the new equipment, you may reduce your annual tax burden. The issue of leasing equipment will also allow you to get new equipment for a lesser cost compared to buying new ones with your own money.
Getting a loan to finance your business equipment needs will mean that you’ll remain with more cash that could be put into more productive use in the business.
If you are running a business, investing in equipment will increase efficiency and productivity. Equipment financing comes in handy to help you buy equipment even if you don’t have the money to buy in cash. We’ve explained tio you not only the benefits of equipment financing, but also how you can apply for the same.