Although it is expensive, if you are in the business of construction you know that you must have heavy equipment. To keep your operations going, you need to find the best equipment financing solution for your needs. Read on to learn about three options: a small business loan, an equipment loan and an equipment lease.
Small Business Loans
When you take out a small business loan, the length of the loan should be less than or equal to the length of time the equipment is expected to last. It is not a good move to agree to continue paying off the equipment after it is no longer useable.
Try to find the lowest annual percentage rate (APR) you can. Credit unions and banks are good options for low APRs, but if you do not have excellent credit, you may be better off with online small business loan providers. Although the interest rates will probably be higher, you may find these loans easier to get. Keep in mind that, due to the large cost of construction equipment, your necessarily big loans could decrease your capability for borrowing additional funds.
Because the credit standards for equipment loans are not as strict as for small business loans, equipment loans are often easier to obtain. They also depend on factors such as your equipment experience. Equipment loans are a good option if you are interested in tax advantages such as depreciation tax benefits and tax-deductible interest.
Before equipment lenders send you your equipment, they will probably expect a down payment. But you might be able to get around putting down much (or any) money if you have enough equity or assets. Your bank could use your assets as the collateral, which is great if it leads to a $0 down payment. The bank can seize your assets, however, if you default on the loan.
Benefits of leasing your equipment include getting the most modern equipment and saving money. Your monthly payments will also be lower than with business or equipment loans. Leasing is rather flexible compared with loans, and you likely will not need to provide a down payment. You can give the equipment back once you do not need it anymore, but you will be required to provide an early termination fee. Disadvantages to equipment leases include higher interest rates and a lack of depreciation tax benefits.
Your construction business must have heavy equipment, so you should consider carefully the best way for your business to move ahead with its equipment financing. Small business loans, equipment loans and equipment leases all have advantages and disadvantages. Do your research and choose the option that fits best with your business.