Heavy Equipment Financing & Commercial Leasing in 2019

Heavy Equipment Financing & Commercial Leasing in 2019
Rebecca Hosley
on November 4, 2019
Read in 4 min

When you own a business, there might be times when you need to purchase business equipment.

It could be anything from filing cabinets to computers to commercial ovens.

But when you need to purchase a major piece of machinery, like a tractor or an industrial refrigerator, you’ll likely need heavy equipment financing to cover the up-front costs.

You have a multitude of different funding options to turn to in this scenario, like equipment financing or term loans.

In fact, there are heavy equipment finance options available for:

For business owners with less permanent needs, heavy machinery rental and equipment leasing are great alternatives.

In this article, we’ll review the differences between heavy equipment financing, machinery rental, and capital equipment leasing, plus we’ll cover a few extra things a small business owner should know before a major business purchase.

Heavy Equipment Financing

If you ‘re sure you want to purchase a piece of heavy equipment, financing can help you preserve the working capital you need to run your business.

Capital equipment purchases tend to be costly, which is why you will want to spend some time evaluating your options before you choose a lender.

Before you approach any prospective lenders, make sure you know:

  • The exact machine you want to buy
  • How much it costs
  • How much of a down payment you will make, if any
  • What you can afford for monthly payments

Next, you should pull together your company history and financial statements.

Capital Equipment Purchase Requirements

If you are making a purchase for a machine less than $150,000, the process is usually limited to a one-page application.

However, if it’s for more than that, lenders will generally want to see financial statements for the past three years.

By having your financials in order before you approach lenders, you accomplish three things:

  • Potentially speed up the approval process
  • Avoid the disappointment of being told you qualify for a certain rate, only to be told a different story once lenders review your financials
  • Come across as prepared and responsible, which could make you more likely to be approved for favorable terms

Also, be ready to discuss any special factors you want prospective lenders to consider.

For example, if you have a seasonal business, such as snow plowing or harvesting fruit, you might want to ask if you can structure your financing so you are making payments during your peak money-making season instead of during the slow months when cash might get tight.

Rates & Tax Deductions

You should be aware that financing rates can range widely when it comes to purchasing a major piece of machinery.

Perhaps you’ve noticed that certain lenders advertise rates as low as 5 – 6% for heavy equipment financing.

While those rates are possible to obtain, the reality is only a limited number of companies will qualify.

Typically, these types of rock-bottom rates are reserved for companies with outstanding credit that have been in business for several years.

Nevertheless, newer businesses with a solid credit history can still qualify for reasonable rates.

But if you are just starting out and have little credit history or bad credit, you should be prepared to pay a higher rate.

If you do have good credit, you are more likely to qualify for more competitive rates.

In that case, you may find it worthwhile to shop around for the lender who will make you the best deal.

Worth Noting: Any heavy equipment or other commercial appliances you purchase qualifies for the IRS’ Section 179 Deduction.

This tax code lets businesses deduct the full purchase price of any qualifying commercial equipment purchased during the tax year from the business’ gross income.

Heavy Machinery Rental & Leasing

Sometimes you need a piece of heavy equipment, like a bulldozer or a concrete mixer, but only need it for a short time.

Rather than finance an industrial-grade vehicle or appliance you’ll only use for a few weeks, you may want to consider leasing or rental options instead.

So, what’s the difference?

Equipment leasing requires a long-term contract for a specific time period, and typically will include penalties for early cancellation.

On the other hand, heavy machinery rentals give business owners the opportunity to pay for use of the commercial tools they need to get a job done in the short term.

The terms are much more flexible, and the rental can be cancelled at any time.

According to a recent report compiled by Purchasing.com, the majority of construction companies (59%) prefer to lease construction tools and machines.

With that being said, rentals increased by 75% between 2013 and 2014.

Deciding which is right for you really just depends on how long you need it:

If you only need a rig for a few days or a week, a rental is probably your best bet.

However, if you will need it for a few months or more, you might want to explore your leasing options.

What to Look for In Heavy Equipment Financing & Leasing Contracts

While most equipment leasing companies are honest, there are a few that try to take advantage of inexperienced lessees.

An easy way to combat that is by taking the time to thoroughly review your leasing contract before you sign.

Some warning signs to keep an eye out for include:

  • Provisions that provide guaranteed renewals, even if you don’t sign off on it. These are known as “evergreen” leases, since they can continue even without approval from the lessee.
  • Built-in extensions that can tack on an extra 12 months to your lease that you weren’t expecting.
  • Lease documents that don’t match up with the proposal. Double check the lease before signing to make sure it matches what you agreed to in the original proposal.

It’s also a good idea to ask for contracts ahead of time, so you have time to review them before you sign.

Be sure to get counter-signed copies of all contracts.

Again, while most heavy equipment financing companies are legitimate, there are some that have been known to make additions or revisions if you don’t leave with a counter-signed copy.

What now?

See what kind of financing you might qualify for right now – We’re here to help you connect with a lender through our simple online form.

See Business Lenders

Rebecca Hosley Finance Journalist

Rebecca Hosley is a content writer based in Chicago.

She frequently writes about small business, insurance and finance.

In her free time, she enjoys trivia, craft beer and disc golf.

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