How to Choose a Construction Equipment Financing Loan for Your Business

Published December 15th, 2023 by River Point Capital

In the second quarter of 2023, construction equipment values showed slight growth, causing equipment costs to get higher. This leads to construction businesses having to pay higher amounts or lose out on project income.

Some businesses already struggle with purchasing equipment to finish their projects. Construction equipment financing aims to eliminate this problem by making equipment more affordable.

However, with so many lenders to choose from, it can be hard to pick the right option. Keep reading to learn how to choose a financing plan that works for your construction business.

Leasing vs. Financing Construction Equipment

To help you choose a construction equipment financing loan, it's important to first understand the differences between leasing and financing.

A lease works similarly to an equipment rental. You'd pay a certain amount of money each month to use the equipment until the end of the lease term. After the term, you return the equipment or purchase it.

In contrast, a financing loan makes you the owner of the equipment. This means the equipment shows up on a company's balance sheet. You make monthly payments until you've paid off the equipment in full.

Interest Rates and Fees

Interest rates and fees are important aspects of construction equipment financing. These rates will affect how much you pay monthly and the total cost of borrowing.

Compare different financing options to find interest rates and fees that fit your budget and cash flow. Some lenders charge additional fees, such as:

  • Origination fees
  • Processing fees
  • Documentation fees
  • Prepayment penalties

Always read the fine print and ask questions if you don't understand the loan terms before agreeing to them.

It might be a good idea to consult your business accountant to see how much you can afford to pay monthly as well.

Loan Term and Flexibility

There are equipment financing options that are going to be more flexible than others. The loan term is how long the contract will last, which may range from a few months to many years.

The longer the loan term, the less you'll have to pay monthly. However, you will have a higher interest rate and higher overall cost of the loan with longer terms.

Choose a financial term that matches your project timeline and how long you'll need the equipment. Look for financial partners who offer flexibility in case you decide to extend or renew your contract.

Equipment Quality and Availability

Industrial equipment for the construction sector might not be available during your project timeline with a certain lender. Make sure the equipment is available when you need it, especially if your project starts right away.

You need to look for a financing partner that offers a wide selection of equipment from reputable manufacturers and brands.

Check the condition, performance, and age of the equipment before signing a contract. The last thing you'll want is to end up with faulty, unsafe, or outdated equipment.

Customer Service and Reputation

The construction equipment financing partner you choose should have a glowing reputation and awesome customer service.

Look for a partner with a track record of providing professional, transparent, and reliable services to construction businesses specifically. You can do this by looking at ratings, reviews, and testimonials from real customers.

Avoid lenders that have a history of poor communication, hidden fees, or unfair practices. Look for a partner who understands the industry and will offer you advice on the best financing option.

Application Process and Requirements

When you are financing used or new business equipment, you need to have a complete understanding of the application process and requirements of the equipment financing partner.

Ask lenders about their application process and requirements. You won't want to apply for financing with a lender that puts you through the wringer before deciding whether or not you can receive financing.

Not only is this a huge waste of time, but too much paperwork is a hassle you won't have to deal with by choosing certain lenders. In an ideal scenario, the lender you choose will have an easy online application.

Check a lender's eligibility criteria to see what documents and information are required of you. Gathering these things ahead of time will help you get through the application process quicker.

There are lenders with stricter requirements than others. Typically, lenders will look at:

  • Credit score
  • Income
  • Collateral
  • Business history

To receive competitive term offers, choose a partner that accommodates your situation.

Some lenders will approve or deny your application within minutes. Once you are approved, you will sign the paperwork and receive an equipment delivery. Funds are usually disbursed directly to the company.

Benefits and Risks

Weighing the benefits and risks of working with certain construction equipment financing lenders is key to making a great decision.

Equipment financing comes with many advantages, such as:

  • Preserving cash flow
  • Reducing maintenance costs
  • Accessing the latest technology
  • Improving tax deductions

If your business finances heavy construction equipment, you might be eligible for a tax write-off, also known as Section 179 of the IRS tax code.

Let's say you financed $100,000 worth of equipment. From this, you might be able to deduct the entire amount from your taxable income for the year that it was financed.

You can reap all of these advantages with the right lender, but construction equipment financing comes with risks as well. The risks you need to know include:

  • Losing equipment ownerships
  • Being locked into a long-term contract
  • Paying more interest over time

Weigh the pros and cons of equipment financing by comparing it with alternatives. Renting, leasing, or buying equipment might be a better choice for your business depending on your needs.

Choosing the Right Construction Equipment Financing Loan

Heavy-duty construction equipment can last years, but not all businesses can buy equipment outright. Construction equipment financing makes buying equipment more affordable with the right partner.

Riverpoint Capital can work with your business to craft a financing plan that suits your equipment needs. Our experienced financial managers will discuss what kind of equipment financing terms make sense for you.

Apply now to get the process started.

‹ Back