WHAT IS HEAVY EQUIPMENT FINANCING AND HOW DOES IT WORK?
As a construction company, farm, or trucking business, you are already aware that heavy machinery is not cheap. Excavators, loaders, harvesters, and other high-priced machinery readily run into the six figures. Not many companies have the cash to purchase that out of pocket, and that is where heavy equipment financing is involved.
It is a viable, convenient method of acquiring the machines you need at present, as well as breaking the cost down over an extended period. This is how it works and what you need to know prior to signing a deal.
What is heavy equipment financing
Heavy equipment financing is just a loan or a lease that assists you in obtaining the machinery that your business relies on. You do not have to pay the total one upfront, but make regular payments over a certain period of time, mostly monthly.
The equipment itself serves as the collateral to the lender. It could be a bank, a credit union, or a heavy equipment financing company. You do not necessarily have to provide additional assets to secure the loan. Therefore, small or medium-sized businesses can qualify.
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How the process works
Things may differ based on your province or lender, but the general way of doing things is fairly simple:
Choose the equipment
Begin by making a decision on what exactly you require. Identify the brand, model, and price. Having such information in hand can assist the lenders in reviewing your application within a shorter period.
You also have the choice to get financing for new or used equipment. This is where you need to know the difference between equipment loans and leases.
Equipment loans: You borrow money, use it to buy the equipment, and once the loan is settled, you own it. This is a good option when you intend to have the machinery on a long-term basis.
Equipment leases: You lease the equipment for a specific time. Leasing incurs lower initial capital and might be easier to upgrade to the new models in the future.
Apply for financing
You will also give some financial information regarding your business, including:
- Revenue
- Years in business
- Credit history.
Quite a number of lenders in Canada have a program that suits the newer companies as well, so do not assume that you will not get it because of a growing business.
Approval and funding
Upon approval, the lender directly pays the vendor, and you get the equipment. You will start making payments as per the agreed-upon schedule. It could be monthly or quarterly.
End of term
Whatever happens at the end of your term is determined by the nature of financing. In case it is a loan, you will own the equipment. With a lease, you may generally return, renew, or purchase the machine at a residual amount.
The bottom line
Heavy equipment financing enables your business to remain productive and competitive even when you would not have been able to make huge purchases otherwise. It gives you space to grow without endangering your working capital.
