A Guide to Heavy Equipment Financing

If you have a construction business, excavation company, or remodeling firm, you might need heavy equipment. From bulldozers to loaders, and from backhoes to excavators, there are a lot of heavy equipment vehicles used in the construction industry. These pieces of heavy equipment can be quite expensive, however.

As a small business owner, you might be concerned about the financial burden that purchasing heavy equipment can put on your business and its cash flow. As a result, you might be interested in finding an affordable lender with equipment loans that can help your business get the type of equipment that it needs.

If this is your first time going through the application process, you might be concerned about finding the right equipment financing option to quickly get your business the heavy equipment that it needs to fulfill its order obligations. There is no need to worry. In this article, we will dissect the meaning of heavy equipment financing, how you and your small business can qualify for it, the differences with equipment leasing, the process of applying for heavy equipment financing, the costs involved, and the documents required to apply. We’ll cover the following topics in detail in this post:

What is Heavy Equipment Financing?

Heavy equipment financing is the term that is used to define financing options for heavy equipment. If you work in or near the construction industry, you may have heard the term heavy equipment. Heavy equipment refers to equipment used in the construction process, such as bulldozers, excavators, backhoes, loaders, forklifts, tractors, or other large construction vehicles. If you have driven past a construction site or along a highway road work section, you have probably seen vehicles that fall under the heavy equipment category.

Heavy equipment financing provides companies and entrepreneurs with the ability to finance heavy equipment for their businesses. This specialized type of financing is different from an SBA loan, line of credit, term loan, or other types of loans. More traditional kinds of loans usually come with higher interest rates than standard heavy equipment financing. As a result, heavy equipment financing offers businesses an affordable option and great repayment terms as compared to other small business loans.

The reason for this is because of how the loan is structured. In heavy equipment financing, your business is financing a vehicle used in construction that has a lot of value. For example, if you bought the equipment and later turned around and sold it, the vehicle would retain a lot of value relative to its original purchase price. This allows for the heavy equipment that you purchase on a loan to serve as collateral.

Since the collateral can recover a large part of the original cost of the equipment, lenders are much more likely to lend to a borrower and lend at a lower interest rate. This allows for the option of a unique type of loan known as equipment financing.

This option, while still requiring a business to pay interest on an equipment loan, may be the best way for your small business to manage its cash flow. If you have a construction business, you might be more interested in distributing profits or reinvesting quickly back into the business. In any case, you might not be producing enough profit to outright purchase the heavy equipment that you need. As a result, you may prefer to finance the equipment purchases you want to make to increase the logistical possibility of doing so or the overall profitability of your small business.

Qualifying for Heavy Equipment Financing

If you are interested in heavy equipment financing options available to you, you might be wondering how to qualify for heavy equipment financing. If you are interested in finding the best lender and getting the business equipment that your small business needs as cheaply as possible, this will be a complete guide to how to make a successful application.


Revenue is an important metric for lenders to gauge the ability of your small business to pay back its heavy equipment loan. Essentially, if your business has a low amount of revenue, lenders will be skeptical of your future business’s capability to repay your equipment loan. On the other hand, if you have a strong annual revenue stream, financing companies may not be worried about your ability to afford construction equipment financing, and as a result, potentially offer you more favorable terms or lower interest rates.

Cash Flow

Similar to revenue, cash flow is another important financial metric. Since cash flow comes after how you manage business expenses such as operating expenses, cash flow can help reveal how much capital you can move around in your current business. Your loan terms for your business financing may depend on your business’s cash flow, as a result. This is because cash flow represents the money available in any current state for new equipment beyond working capital.

A lender may be interested in seeing your financial statements to determine if your small business has sufficient cash flow for equipment financing.

Type of Industry

Interestingly, the type of industry that your small business operates in has a large effect on the likelihood of your small business being granted a loan or more favorable loan terms. This is because certain industries have greater risks of business failures than others. By assuming an average risk profile of a given industry, lenders will theoretically increase the cost of equipment financing for certain borrowers based on their industry.

One of the examples that can be used to understand this difference is the construction industry versus the transportation industry. Since the transportation industry also uses some heavy equipment, companies in the transportation industry may be interested in applying for equipment financing. Construction startups or companies usually work based on contracts. They must first acquire a contract, complete the contract, and get paid. Sometimes, contracts get dropped in the middle of a construction project. As you might be able to see, revenue can be somewhat less predictable based on the way contract dynamics work in the construction industry.

However, in the transportation industry, revenue is usually a lot more predictable. The business development process is not as dependent on a few customers in an industry deciding the fate of your construction enterprise’s revenue.

As a result, interest rates and payment terms may be worse for construction businesses than transportation businesses. In any case, you should understand that your industry may affect the qualification and terms of an equipment loan for your business.

Business History

Your business history will also affect your ability to qualify for equipment financing as well as the terms of the financing that you will be offered. The consideration of your business history will include both your business’s financial history as well as the total amount of time that you have spent in business.

If your construction business has had a year or more behind its belt, this will be more attractive to a lender than a newer business. Moreover, if your business is pretty profitable and has had a good record of profitability, a lender will likely be confident in your ability to pay back your equipment financing loan.

In any case, you should try to apply for equipment financing if you believe it will benefit your firm. There are many options available from online lenders to help your small business at every stage of your financial journey. Even if you are just starting, there are loan options for every small business to be able to get the equipment that they need to fulfill their contracts.

Down Payment

A down payment is a tool that can be used by both the borrower and the lender to reduce the cost of a loan in equipment financing. A borrower can place a down payment on a piece of heavy equipment to reduce the overall cost of the loan. This can reduce the cost of the loan to a lender by making the collateral more likely to cover any loss if the borrower does not pay the collateral back.

Moreover, if you place a down payment on a piece of heavy equipment that you are looking to finance, you might reduce the interest rate that you are obligated to pay on your monthly payment. Your down payment can get you better terms on your loan and make the loan amount that you will get a lot more affordable to pay back by reducing the upfront loan amount. In all, a down payment is a great tool to help reduce the burden your small business will take on with heavy equipment financing.

Credit Score

Perhaps one of the most important and influential factors for your small business to qualify for heavy equipment financing is your credit score. While both your personal and business credit score might be referenced in the application process, your credit score should be at least somewhere between 600-650, with a higher credit score being even better. A higher credit score can reduce the interest rates that you are offered and increase the likelihood of your loan being granted.

A bad credit score does not immediately disqualify your small business from funding. However, it may make your terms slightly more costly. A good way to reduce the chances of being denied or having worse terms is to put a larger down payment on your heavy equipment, seek the help of an alternative lender, or communicate the sustained profitability of your small business, assuming you have a history of profitability.

Equipment Financing or Equipment Leasing

While equipment financing usually refers to a loan to acquire a piece of equipment, equipment leasing is another option for your business. Choosing between the two usually entails considering what option is best for your business.

Equipment financing in heavy equipment financing is used when you are sure that your business wants to buy the piece of equipment that you are using. This might make particular sense with heavy equipment since heavy equipment will retain a high fair market value relative to the purchase price long into its operation. That way, if a business no longer needed the equipment, it could simply turn around and sell it.

However, there are other cases where equipment leasing may make more sense for your small business. Similar to a loan, you make a monthly lease payment on an agreement for heavy equipment leasing. This agreement lets you rent a piece of heavy equipment for a certain amount of time before needing to return it, buy it, or re-lease it.

Fundamentally, a lease might make the most amount of sense for your business if the heavy equipment you are using will depreciate quickly and the use of the equipment will be heavily diminished over the lifespan of the heavy equipment. This might especially be true if you want to consistently replace your heavy equipment with the newest heavy equipment on the market at the end of the lease term.

If you are interested in lease financing, there are three options for lease financing including lease financing, capital leasing, and operating leasing.

Lease financing is where a company leases equipment for a period of time, paying a lease each month. After the lease ends, the business can choose to continue leasing the heavy equipment, return the heavy equipment, or purchase the equipment from the leasing company. This can lower the upfront expense of a business buying a piece of heavy equipment outright.

A capital lease is more like a loan. With a capital lease, your small business leases a piece of heavy equipment for a certain amount of time. At the end of the lease, you will own the equipment.

An operating lease is a type of lease where you make lease payments and at the end of the lease period, you will return the equipment. This is a good financing option if you are sure that you absolutely want to own the piece of equipment at the end of the lease.

Equipment financing and equipment leasing can help your construction company have flexibility in acquiring heavy equipment for business purposes. If you want to own a piece of equipment, equipment financing might be the best option for you. On the other hand, if you prefer to rent a piece of equipment and frequently get new equipment, equipment leasing might be best for your needs.

Getting Equipment Financing

Equipment financing might be an attractive option for your business needs. After having become familiar with the qualifications needed for applying for equipment financing, you might be interested in how to apply for equipment financing. You may find it convenient to follow certain steps we outline below as you prepare to apply for heavy equipment financing.

Determine What Your Business Needs

First, you should determine what your small business needs when it comes to heavy equipment. As a small business owner, you know your business needs best. If you are looking for heavy equipment financing, you might have a specific construction vehicle or construction vehicles that you are looking to finance.

One of the largest considerations you should take into account is how often you will need to use these pieces of heavy equipment. For example, you might have a contract that has certain construction needs that require a specific type of heavy equipment to help, such as a bulldozer. However, it is likely that you are not interested in financing just because of one project. If that were the case, a short-term lease or rental might be preferable. As a small business owner, you likely anticipate the need to use a similar type of heavy equipment in many future contracts.

Based on these projections, and determining the heavy equipment you are looking to acquire, you can outline your business needs. This will help you prepare for the application process by being specific with what your small business wants to finance.

Understand Your Credit Score

As mentioned in the information about qualifying for heavy equipment financing, your credit score is an important determinant of your eventual equipment financing offer.

Your credit score will affect your interest rate and the terms that you are offered. At the most fundamental level, your credit score can also affect whether a lender decides to grant your loan or deny your loan application. As a result of this, your credit score will also determine whether it is possible to get a loan from more traditional lenders or whether you will need to turn to alternative lenders.

If you have some time before applying for an equipment financing loan, you can try to improve your credit score in a variety of ways, including making payments on time and reducing your credit utilization. This applies both to your personal credit score and your business credit score. However, by the time you are applying for an equipment financing loan, you may not have the ability to affect your credit score that much.

The best recommendation, in this case, would be to understand what kind of equipment financing might be available to you. Online alternative lenders might be the best option if your credit score is less than 600. Moreover, you might consider placing a larger down payment or supplying additional evidence of your profitability if you have bad credit to increase your chances of being granted a loan.

Find the Equipment Financing Amount Which is Best for You

Once you understand your heavy equipment financing needs and the loans you will be able to get given your credit score, you can begin to find the kind of equipment financing which is best for you.

As aforementioned, you should consider the amount of a down payment you want to place on certain pieces of heavy equipment in your equipment financing arrangement. This can reduce the equipment loan amount that you will have to pay, but it will also absorb part of your current capital which might be better deployed elsewhere.

When considering how much to spend on equipment financing, you should think about your other capital deployment goals within your business. If there are upcoming ventures, big expenses, or other financial obligations that you need to meet, taking on more financing might be a better option. Yet, if you have a lot of cash on hand without a lot of major expenses, putting as much money upfront toward equipment financing as you can would be a great idea to reduce future expenses for your business.

The right balance will ultimately depend on your unique situation. As a small business owner, you need to determine the right appropriation of funds and debt for your construction business.

Apply for Equipment Financing

With a clear understanding of your business position, needs, and prospective lending amount, it is time to locate a lender for your construction business equipment financing needs. Once you know the lender you want to finance with, apply through their application and wait for an answer.

Each lender will require different documents from you and your business. We will review the likely documents a lender will ask from you later in this article, but the exact agreement will depend on the lender.

Keep in mind that processing speeds for your heavy equipment financing loan will vary based on the lender that you go with. Traditional lenders like banks take longer processing times. Online or alternative lenders can help you finance equipment quicker.

Costs of Equipment Financing

If you are considering equipment financing, it is important to understand the costs involved. You want to be able to estimate the cost of the financing well to efficiently spend your time in applying for financing as well as ensuring that equipment financing is the best option for your business.

Speed of Financing

You might be concerned about the speed of financing for what it means for your business. You might need to purchase a piece of heavy equipment soon to have it working in time for completing a project. As a result, you might be rightly concerned about the speed of financing and funds getting to your business.

The good news about equipment financing is that it is easy to get a relatively speedy decision on equipment financing. Within two business days, you should be able to get funding for your heavy equipment. This is because the underwriting process for equipment financing is much easier than for other types of loans.

Interest Rates

Interest rates for equipment financing make equipment financing one of the most affordable options available to your construction business to finance heavy equipment. Rather than needing to take out a term loan or SBA loan, equipment financing might be the cheapest option available to your small business.

Interest rates can range widely, but they typically fall between 9% and 30% for heavy equipment financing. The interest rate that you are offered will depend on a variety of things. This might include your business history, your revenue, your cash flow, other financial factors, or your credit score. The better your business tends to do, the lower your interest rate and the better your terms will likely be.

In all, interest rates create a cost for your business to compare against the benefits you could otherwise gain from deploying that capital. By spending additional money on interest, you are forgoing future profits for the piece of heavy equipment that your business wants. This recognition can help you calculate whether equipment financing at a given interest rate is worth it for your business.

Term Length

The length of the heavy equipment financing loan you get may matter greatly to you. This is because it will affect the amount that your construction business will be obligated to pay each month. If this amount is too high, you may be concerned about the profitability of your business. After all, the equipment financing you are going to undertake will add additional costs to your business.

A longer term length is usually associated with companies that have higher credit scores. You might be able to get longer term lengths if you have a long business history, good profitability, or more. Overall, your lender will give your small business more leniency if you present a lower risk of default for them.

Amount of Financing

Another potential cost is the amount of financing you can get with equipment financing. The severity of this cost will depend on your situation. A great part about equipment financing is that it allows you to have the flexibility to put down the amount of capital that you are comfortable with.

Of course, whether your financing application gets approved or not will depend on a variety of factors. These include your credit score, revenue, cash flow, and other factors relevant to your business. If your business is in good financial shape and has a robust credit history, you should be comfortable knowing that you can likely finance as much of the heavy equipment as you need.

This means that you might have the ability to finance the full amount of a piece of heavy equipment if you wish. This will impose additional costs in interest and monthly payments to your construction business. However, this may a great option if your company would prefer to deploy its capital elsewhere.

Documents Needed for Equipment Financing

At last, if you are approaching making an application for heavy equipment financing, you need to prepare a few documents. First, a heavy equipment invoice will likely be required for your lender. When you go to purchase a piece of heavy equipment, you should ask for an invoice. You can upload that invoice to your application or send it to your lender so that they can verify the amount of the loan that you need.

In addition to information about the price of the heavy equipment, you will likely need to supply additional information about yourself and your business. A lender will likely ask for a driver’s license or some other form of documentation to identify that it is you who is applying for the loan. A lender will likely also ask for your business tax returns. They may ask for your tax returns as well, depending on the situation. An equipment financing lender will likely ask for your business financial statements and bank statements to determine the financial health of your business and its ability of it to repay the debt you are planning to take on.


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