Heavy equipment financing means that you get to keep the machinery by the end of a contract, and it’s a great way to get ahold of expensive heavy equipment without having to pay the high costs upfront. This guide illustrates exactly what to look for in heavy equipment financing companies (and also what they’re looking for in you) so that you sign a contract for a fair price – and not a penny more.
The right financing agreement lets you pay as you earn using heavy equipment.
The Three Ways to Finance Heavy Equipment
Heavy equipment financing can be done in three different ways:
- Installment Agreement
Instead of paying the full cost all at once, payments can be broken up into pre-determined installments (usually monthly).
Most leases act as rental agreements, but sometimes there is an optional stipulation to buy the heavy equipment at the end of the contract if desired.
A benefit of this option is that you won’t be locked in a sales purchase should a better model come out in the meantime.
- Line of Credit
Sometimes a financing company will extend a line of credit that acts much like a credit card.
A key difference, however, is that interest on new purchases starts straight away, so there’s no “grace period”.
What is In a Heavy Equipment Financing Contract?
Whether you are just beginning your business or need to upgrade an existing fleet, there’s many different reasons to seek help from heavy equipment financing companies. However, you always have to be wary of the following:
- Down Payment
This is the initial payment for heavy equipment. It should be between 10% and 20% of the equipment’s overall value.
- Interest Rates
Heavy equipment financing companies typically charge a fixed income rate that’s between 8% to 30% of the overall loan. Anything higher than 30% may be too difficult to pay off on time and should probably be avoided.
- Loan Term
The duration of the contract. This will determine how much interest you pay, so try to pay high installments to avoid compounding too much interest. At the same time, keep the payments comfortably affordable so that your business can grow.
Most heavy equipment financing loans last about seven years.
- Origination Fees
Sometimes a lender will charge a processing fee to cover the expenses of a loan. Ask them to fully explain the math behind this fee to avoid overcharges.
- Soft Costs
This refers to additional costs such as taxes or delivery fees, which some companies are willing to help finance.
Some companies will finance up to 25% of the soft costs associated with your heavy equipment if you ask.
The magic cut-off number when it comes to heavy equipment interest rates.
Adjustable Versus Fixed Financing Rates
Heavy equipment financing companies can charge a flat rate that never increases (this is a fixed rate) or an adjustable interest rate that usually starts off very low and then increases after an introductory period.
Adjustable interest rates may be a better option if you do not have a lot of money in the beginning (the idea is to make enough money with your equipment so that you can afford the interest rate hikes later).
How Much Are Heavy Equipment Financing Rates?
When it comes to equipment financing, bad credit tends to make rates go up and good credit keeps them low. Any bankruptcies or missed payments can negatively affect your rates.
The better your credit score, the longer you can comfortably hold a contract for because compounding interest rates will be marginal. This means that people with good credit can stretch their contracts out and pay lower installments more easily.
With that said, do not let bad credit discourage you from the idea of financing equipment. Many companies specialize in financing clients with bad credit, and many “high-risk” companies have fully recovered using financing companies.
Credit matters, but it’s only one piece of the financing puzzle.
Most heavy equipment financing companies will use the heavy equipment itself as collateral – that is, you don’t get to keep the equipment if you don’t pay. If a company requires you to put up your home or savings account as collateral, ask yourself if it’s really worth the risk. You can probably negotiate a better contract with another company that does not make such demands.
Heavy Equipment Financing and Tax Deductions
Heavy equipment financing is typically tax deductible. IRS Section 179 permits up to $500,000 to be claimed for financed equipment, which can be a life saver for smaller businesses. Be sure to always consult with a professional tax service before making any tax-related determinations.
How Much Does it Cost to Finance a Bulldozer?
You can finance nearly any type of heavy equipment, from combine harvesters to log skidders for sale, but bulldozers are one of the commonly financed pieces of equipment in today’s market, so we'll use it as an example.
Financing a bulldozer, like any other piece of equipment, largely depends on your credit, but monthly payments for a five year contract worth $100,000 might be around:
- Strong Credit – $2,300 or less
- Good Credit – $2,475
- Average Credit – $2,875
- Bad Credit – $3,000
Why Choose Heavy Equipment Financing Companies?
There’s a lot of ways to get a loan, but heavy equipment financing companies tend to be the fastest and most reliable option. Banks have many procedures to go through and can take forever verifying your worth before offering a loan, and they tend to be much less negotiable if you cannot make a payment. Heavy equipment financing companies, on the other hand, understand the nature of the business a little better and can be much more generous when it comes to extending times and forgiving debts if need be.
Looking to Get Heavy Equipment Financing?
Aside from providing incredible financing options ourselves, My Little Salesman is proud to list other great heavy equipment financing companies who would also be honored to have your business. We encourage you to do call around, do some price comparisons, and then pick the right financing company for you!
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