How to Get Heavy Equipment Loans for Your Business

Heavy equipment refers to heavy-duty vehicles like those used in construction. A heavy equipment loan is collateralized by the equipment with the buyer agreeing to pay down the principal and interest over a predetermined period of time. In return, the lender grants the buyer the benefits of ownership while the business preserves cash on hand.

Business owners looking for a heavy equipment loan can fill out an application online with National Business Capital and receive approval almost instantly. Full approval and funding are available within 48 hours, and loans ranging from one to five years.

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Heavy Equipment Loan Providers

Small businesses that need a heavy equipment loan can access lending in a variety of different ways, including by working with their local bank, pursuing a loan through an equipment dealer or manufacturer, or an alternative lender, and by using an alternative lender. Business owners who also need working capital may want to consider pursuing a term loan, SBA 7(a) loan, or a line of credit.

Heavy Equipment Loan Providers

Some providers of heavy equipment loans include:

Kubota In-House Financing

For businesses purchasing heavy equipment directly from the manufacturer or through a dealer, an important first step is to identify whether any in-house financing exists. In-house financing, also known as captive financing, often offers the best rates and lowest borrowing costs among heavy equipment loan options. Kubota offers in-house financing on its range of heavy equipment and farm equipment.

Businesses purchasing new equipment from Kubota can benefit from 0% APR on loans up to 60 months, or 0% leases up to 60 months, making this a great option. The main drawback of in-house financing is it typically comes with the most stringent credit guidelines. Startup businesses and borrowers with poor credit will likely need to explore other options.

Crest Capital

A leader in heavy equipment financing, Crest Capital offers loans and other equipment financing options. In addition to offering these programs to borrowers who need heavy equipment loans, Crest Capital also provides in-house financing to several heavy equipment manufacturers and dealerships.

Business owners with at least a 650 credit score and two years in business should consider Crest Capital for a heavy equipment loan. Crest is also a great option for borrowers who would like to explore other financing options including equipment leasing. Crest offers application only equipment loans up to $250,000 with rates starting at 5.5% and terms between two to seven years.

National Business Capital & Services

National Business Capital & Services is a marketplace lending platform that offers heavy equipment loans and leases using a highly-personalized approach. National stands out for its willingness to work with credit-challenged borrowers.

Business owners who have had difficulty obtaining a heavy equipment loan will want to consider National, which offers simple minimum criteria including no minimum credit scores for businesses with six months in operations and gross monthly revenues of $10,000 or more.

Bank of America

Bank of America is a national bank offering borrowers access to thousands of ATM and banking locations nationwide. Offering heavy equipment loans on a variety of equipment ranging from construction to packing and manufacturing equipment, Bank of America is an option for borrowers who want to work with a nationwide bank or who already have a relationship with the bank.

Bank of America will lend on heavy equipment starting at $25,000 with rates as low as 3.75% and terms up to five years. Businesses will need a minimum annual revenue of $250,000 and two years in business. BofA doesn’t list minimum credit criteria but it is likely to require a score of 650 or higher. Only very creditworthy borrowers will qualify for BofA’s lowest rates.

Wells Fargo Bank

Considered to be a very friendly bank for businesses, in part due to a wide variety of banking solutions as well as thousands of locations nationwide and business-friendly Saturday hours, Wells Fargo offers heavy equipment loans up to $100,000 as part of its Equipment Express Loan, and beyond that as a part of its Commercial banking division.

To qualify for Wells Fargo’s Equipment Express Loan, borrowers will need to be an existing banking customer of at least one year. The bank requires a minimum credit score of 640, although Wells Fargo does not list any minimum time in business or annual revenue. Interest rates start at 6.75% with 0.25% discounts available with autopay.

How Heavy Equipment Loans Work

A heavy equipment loan is an amortized loan secured by the equipment financed with borrowed money. When a business takes out a loan, it agrees to make a number of payments over a predetermined period of time, known as the loan term. Unlike an equipment lease, paying off a heavy equipment loan early often means saving considerably on interest, as only the principal remaining and accrued interest thus far is due.

While typically the most difficult form of financing to qualify for, manufacturer or dealer financing is usually the lowest cost form of financing available, as special subsidies and 0% interest rates can be obtained that other lenders have no incentive to offer. Borrowers that cannot qualify for a special rate or subsidy from the dealer may obtain a better rate or terms from another lender.

Who a Heavy Equipment Loan Is Right For

Any business that needs to acquire heavy equipment should consider a heavy equipment loan, even if it has the capital on hand to purchase outright. Businesses that cannot afford a new piece of heavy equipment should also consider a loan. Even used equipment can quickly run into the hundreds of thousands, creating a barrier for many businesses.

Some scenarios where a business should consider a heavy equipment loan are:

• Well-qualified businesses: Borrowers with good credit (680+) that can qualify for special rates can potentially save money by taking out a loan.
• Offering new services: Expanding services offered, for example excavating, means adding the right equipment to the fleet.
• Growing footprint: Gaining contracts in an expanding geographical territory means existing equipment will need to be supplemented to finish jobs on time and on budget.
• Hiring additional staff: Bringing on more highly skilled staff means additional work can be done simultaneously on a project, necessitating additional equipment.

A common barrier to growing a small business is access to capital, and many businesses cannot continue to expand their services and territory without adding new equipment as well as replacing aging equipment. A heavy equipment loan will allow a business to obtain critical equipment and continue to expand while keeping obsolete equipment up to date.

Heavy Equipment Loans vs Heavy Equipment Leases

Businesses that need heavy equipment have several financing options. The two most common are an equipment loan or equipment lease. Businesses choosing between the two should consider several factors, including the amount and frequency of payments, and whether the business ultimately wants to own the equipment.

Heavy Equipment Loans

For businesses that intend to keep the heavy equipment long term, an equipment loan is often the best option. With low interest rates, amortized loan payments, and the benefits of ownership, loans also allow businesses to save money on interest by paying off the loan early. However, strict underwriting criteria including financial disclosures can make heavy equipment loans more difficult to obtain for some businesses.

Some key benefits of equipment loans are:

• Lower interest rates: Rates are typically lower than leasing, but with that comes more strict qualifications, including higher minimum credit, years in business, and annual income.
• Amortized payments: Payments will be fixed and equal, with the principal paid down gradually increasing as interest is paid down – many loans can be paid off early, allowing for savings on interest.
• No prepayment penalties: Most loans will be free of prepayment penalties, meaning businesses that want to pay off the loan early can do so without negative consequences.
• Tax benefits: Heavy equipment financed with a loan can be depreciated, up to $1 million of the equipment’s value in the first year. Interest can be written off as an expense as well.

Heavy Equipment Leases

Compared to heavy equipment loans, equipment leases offer more flexible repayment terms and the ability to pay just a percentage of the equipment’s total value for use of the equipment. For businesses that won’t keep the equipment, or frequently upgrade equipment, a heavy equipment lease is often the right choice. Additionally, businesses with weak credit and poor financial history will find equipment leasing criteria more forgiving.

Some key benefits of equipment leases are:

• Flexible repayment terms: Lenders frequently offer affordable lease terms including deferred, seasonal, or step-up payments.
• Ability to upgrade: Leases allow for businesses to replace obsolescent equipment more frequently with less hassle.
• Pay only for use: Leases act like long-term rental contracts, allowing businesses to pay only for the period of time in which the equipment will be used.
• Tax benefits: Depending on whether the lease is a capital or operating lease, leased heavy equipment may either be depreciated with the interest expensed—similar to a loan—or full payments may be written off as an operating expense.

Heavy Equipment Loan Costs

Depending on the type of equipment loan, costs, terms, and qualifications will vary. An SBA 504 equipment loan will typically offer the lowest interest rates and longest terms. Asset-backed equipment loans from a bank or alternative lender have terms up to seven years, and rates as low as 6%, on average. Unsecured term loans have the shortest term lengths, and highest interest rates, by comparison.

Heavy Equipment Loan Costs, Terms and Qualifications

Heavy Equipment Loan Costs

The most important cost to consider is the interest rate, which determines how expensive it is to borrow in order to purchase heavy equipment. Businesses should also note any additional fees, like loan origination, packaging, and servicing, into account. These fees if paid upfront should be considered an additional cost. If they are rolled into the loan, they will impact the annual percentage rate.

Loan Terms

Loan terms include the length of the loan, collateral and personal guarantee requirements, as well as any down payment. In the case of an equipment loan, where 0% down loans are available, they are atypical, reserved only for the best credit. SBA 504 loans generally require just 10% down as an equity injection. Unsecured term loans have no down payment requirement.

Loan Qualifications

Qualifications play a significant part in both loan costs and terms. Borrowers with strong credit (at least 680) and annual revenue of at least $120,000 will have access to the most attractive loan terms, lowest rates, and longest repayment schedule. Unsecured term loans typically have the lowest minimum qualifications, with some lenders not setting a minimum credit score to apply.

How to Apply for a Heavy Equipment Loan

In general, SBA backed loans will require the most steps, and have the heaviest documentation and application requirements. Larger heavy equipment loans—typically anything over $150,000—may also require additional documentation. Unsecured loans will generally have the simplest requirements.

The six steps to apply for an equipment loan include:

1. Determine Eligibility

Businesses will want to check the eligibility requirements for the loan they are pursuing. Borrowers should make sure they meet the minimum credit score, and that the business meets both gross annual revenue and years in business requirements. Failing to do so may mean receiving a hard credit pull for a loan the business is not qualified for, which can negatively impact future borrowing.

2. Choose the Right Loan

For most businesses, choosing the right loan will come down to a combination of which loans the business is eligible for, as well as criteria like the available loan terms and rates. Businesses will want to weigh desired payments, any required down payment or equity injection, as well as whether they meet minimum revenue and time in business requirements.

3. Find a Provider

Any business purchasing new equipment or equipment through a dealership should first evaluate any in-house or dealer financing options. Business owners may wish to enlist the help of a business loan broker to ensure they are comparing loan options and rates to get the best possible terms. Whether a business uses a loan broker or not, it is best to compare loans from at least three different providers.

4. Gather Required Documentation

Some lenders offer heavy equipment loans without additional documentation, known as application-only loans. However, most lenders will require some financial documentation such as profit and loss statements (P&L) as well as recent bank account statements and tax returns.

Some common required documentation for a heavy equipment loan are:

• Year to date P&L and balance sheet
• Business and personal tax returns (last two years)
• Business license, certificate, and/or proof of ownership
• Financial projections (one to three years)
• Personal financial statement (PFS)
• Quote for the heavy equipment being purchased
• Quote for any soft-costs (training, installation, delivery)

The level of documentation required will vary depending on the lender, with heavy equipment loans for higher amounts (typically anything over $150,000) requiring more documentation. In the case of an SBA loan, the above documents will be required, as well as a business history, business plan (for startups) and resumes from any owners.

5. Complete Pre-work

For businesses applying for an SBA loan, a number of documents can be filled out in advance of filing, and will be asked for by the lender. In many cases, borrowers can fill these out with the assistance of the lender and may wish to do so, as the lender can assist and make sure that all information is being accounted for accurately, and presented in the best possible light.

For most other loans, pre-work is limited or non-existent. Generally, borrowers will want to reach out to the lender, or business loan broker, to learn whether there are any prerequisites they should be prepared with.

6. Apply

Borrowers should ask potential lending partners if the initial application can be done without a hard credit pull. In many cases, lenders will issue a pre-qualification based on financials as presented by the borrower as well as a soft credit pull. This is a critical piece of comparing lender offers, as it allows a business to solicit multiple offers with little practical impact to credit.

In most cases, an application can be submitted online. Lenders are typically able to approve applications within a couple of hours, to up to 48 hours in some cases. In the case of an SBA loan, getting qualified can take one to two weeks, so borrowers should be prepared.

Tax Benefits of a Heavy Equipment Loan

Businesses that purchase heavy equipment are able to take advantage of tax deductions under Section 179, the same as if the equipment had been purchased outright. The tax deduction allows for the full purchase price, up to $1 million in 2019, to be taken as accelerated depreciation, providing the equipment is placed in service the same year as the deduction.

Business owners should also note that the same tax advantages are available to heavy equipment that is leased using a type of lease known as a capital lease, also known as a finance lease.

Heavy Equipment Insurance

Much like a car loan requires an insurance policy covering repair or replacement of property due to theft, damage, or other circumstances, heavy equipment lenders will require proof the asset is covered by a commercial general liability insurance policy. This may be satisfied by general liability insurance or require commercial vehicle insurance for titled vehicles. Businesses should also consider equipment breakdown coverage, preventing equipment downtime from harming the bottom line.

Equipment Loan Mistakes to Avoid

Some common equipment loan mistakes to avoid are:

1. Make Sure to Check for Liens

This is another issue that typically crops up when considering heavy equipment from a private party. When businesses seek certain types of financing, the lender may apply a blanket UCC lien to the business’s assets. Businesses purchasing from a private party should always check to make sure no such lien exists. If one does, the lender will need to be approached and release their interest in the asset.

2. Be Wary of Leases Masquerading as Loans

Businesses that cannot qualify for a loan may be offered an equipment lease with terms similar to a loan. This is not necessarily a bad option, but borrowers should be wary. While rare, some alternative lenders may offer a lease with terms similar to a loan that automatically renews the lease at the end of the term if the business does not exercise their option to purchase the equipment, or end the lease.

3. Understand When Additional Costs Apply

Businesses that need heavy equipment often budget based on the cost of the heavy equipment alone, forgetting to factor in additional costs. One unexpected cost is securing adequate insurance coverage. In the case of a titled vehicle, a specific policy for the vehicle may be required. In other cases, borrowers will want to check with the lender to see what requirements they have.

Another unexpected cost is heavy equipment storage. Businesses without on-site storage will want to consider where they will store the equipment when it is not in use. It may also be a requirement of the lender or the insurance company that the equipment is stored in a secure location, further driving up storage costs.

4. Consider Whether You Should Lease Instead of Buy

Businesses that need heavy equipment should evaluate whether a loan is the best option. A factor that should be considered is the length of time the equipment will be used. For businesses with a short-term need, it may make sense to lease the equipment. In other cases, a business may wish to lease to gain access to more frequent, low hassle upgrades.

Frequently Asked Questions (FAQs)

We’ve covered a lot of information in this article regarding heavy equipment loans, and attempted to address the most common questions and concerns.

The following are frequently asked questions about getting a heavy equipment loan:

What is considered heavy equipment?

Heavy equipment is not defined by the weight of the equipment, but rather by the equipment’s durability and intended use. The term encompasses heavy-duty construction vehicles ranging from excavators to cranes. It is also used to describe heavy-duty machinery, commonly associated with construction.

Is it better to get a loan or a lease?

Whether it is better to get a loan or a lease will depend on a variety of specifics. The length of time the equipment is needed, as well as whether it will require frequent upgrades, are two primary criteria. Additionally, some borrowers may find that a heavy equipment lease is preferable because of the relative ease of qualifying, as well as more flexible repayment terms.

Is a heavy equipment loan working capital?

A working capital loan is a loan where the funding is not intended for the purchase of any long-term assets, which makes it distinct from a heavy equipment loan. Some forms of financing may combine financing long-term assets in addition to providing working capital. One example of this is an SBA 7(a) loan.

Bottom Line

Getting a heavy equipment loan can be a difficult process, especially for new businesses. Knowing the type of financing that is being sought, as well as the qualifications, will help the process move along smoothly. Comparing loan terms and rates from three or more lenders will help to ensure that a business gets the best possible deal for a heavy equipment loan.

Businesses that need a heavy equipment loan can fill out an application in one minute with National Business Capital, receiving approval same day and funding in as little as 48 hours on loan terms between one and five years.

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