Are You Considering an Equipment Loan? Check Out These FAQs
Most businesses need equipment to operate- but for those that rely on heavy equipment, financing and maintaining it can be costly. This is where an equipment loan can help.
A heavy equipment loan is similar to a regular equipment loan in that it allows the business to purchase the equipment and make payments instead of paying the full amount all at once. This frees up cash flow and gives you what you need to serve your customers.
In this blog, we’ll explore a few of the most frequently asked questions about equipment loans.
13 FAQs about Equipment Loans
Below, find 13 FAQs about equipment loans:
Is there a difference between equipment financing and heavy equipment loans?
Regular equipment financing includes computers, office furniture, printers, etc. Heavy equipment loans refer to financing for heavy equipment such as bulldozers, loaders, forklifts, and any large equipment that requires a special license/training to operate.
How do you know if you need a heavy equipment loan?
If you require heavy equipment for your day-to-day operation and you don’t have the funds to pay for it upfront, you may want to consider a heavy equipment loan. This can help free up cash to invest in an area with a greater potential for ROI.
How do these loans work?
There are two ways to finance heavy equipment: leasing and financing. A lease doesn’t require a down payment or collateral. A loan, on the other hand, allows you to borrow the money to pay for the purchase outright. Depending on your credit and the cost/condition of the equipment, you may be able to finance the full amount. Your decision depends on the type of equipment and how much working capital you have available.
What are the qualifications for heavy equipment loans?
As a general rule, it’s easier to get a heavy equipment loan than other business loans because the equipment is the collateral and the amount you’re borrowing depends on the cost of the equipment instead of your business credit score or revenue.
Is heavy equipment financing available from a bank?
Yes, banks do typically offer heavy equipment loans- but you may need to show revenue or have a higher credit score. These loans typically have longer terms and lower interest rates.
Can you qualify for an equipment loan if you have bad credit?
Many online lenders do approve less than stellar credit scores, as long as you have proof of cash flow or revenue. However, you may not qualify if your score is under 620.
How does the application process work?
This depends on where you plan to apply for your heavy equipment loan. Interest rates are typically more favorable with banks, but the application process is tedious and you may have to wait up to 90 days for a response.
The application process is quick with online lenders. Typically, they only ask for business and personal tax returns, equipment invoices, and a few of your recent bank statements. They may ask for your P&L statement, income statement, or balance sheet as well.
Will you be required to put up collateral?
Typically, with a heavy equipment loan, the equipment is the collateral. If you default, the lender will take possession of the equipment. However, if you have a low cash flow or poor credit, the lender may require a down payment.
What are the interest rates on a heavy equipment loan?
The interest rate on your heavy equipment loan depends on a variety of factors, including the type/condition of the equipment, your credit rating, cash flow, whether or not you have a down payment, and your business experience. As a general rule, interest rates range between 8 to 30%, depending on these factors and the lender.
What are the general term lengths for a heavy equipment loan?
Term lengths vary from one lender to another, but typically are related to the life expectancy of the equipment.
How quickly can you get funded on a heavy equipment loan?
If you choose to get your funding through a bank, you may have to wait several months- but if you go through an online lender, you may have the funds within a few days.
How do you know when you need to replace your heavy equipment?
This depends on the type of equipment, what it is used for, and how many hours it has been used. As a general rule, if the quality of your work is compromised, slowing you down, or posing a safety risk- it needs to be replaced. You should also make sure to take care of any repairs while within the warranty period.
What if the equipment becomes obsolete?
Depending on the industry you’re in, the equipment may become obsolete within a few years- especially with innovations and technology. If you believe that it may become obsolete, you may want to consider an equipment lease instead. This allows you to use it while it’s effective and change it out if technology advances.
All businesses use equipment to operate, and some even need heavy equipment to carry out their tasks. If you are in a business that does require heavy equipment, you may want to consider an equipment loan to pay for it. Contact Toluca Lake Capital to see what type of funding you qualify for and to understand more about your options.