Construction companies often need heavy equipment, which could be a significant investment. Whether you’re purchasing a new crane, backhoe, or bulldozer, finding the right type of financing could make it easier to manage these substantial expenses.
Here are a few potential ways to finance large equipment purchases for your construction business:
1. Loans for Small Business and Equipment Loans
Many traditional lenders offer loans designed for small businesses, which can be used for equipment purchases. When seeking a loan for small business you may find that they are like equipment loans, though small business loans don’t always require collateral.
Banks and online lenders provide term loans that could be used to finance large equipment, with various repayment periods and interest rates. In some cases, you may find it easier to work with a local bank where you already have an existing relationship.
An equipment loan, on the other hand, allows you to purchase equipment while spreading the cost of the equipment overtime. With this type of loan, the equipment itself typically serves as collateral, which may make the approval process simpler and faster.
2. Leasing Equipment
If purchasing new equipment is outside your budget, leasing may be a viable alternative. Equipment leasing allows you to use the machinery for a specific period by paying a monthly fee. At the end of the lease term, you may have the option to purchase the equipment, renew the lease, or return it for a new model.
Leasing can provide flexibility and keep your working capital intact since you avoid the large upfront costs associated with buying.
3. Small Business Administration (SBA) Loans
SBA loans are a government-backed resource for construction companies looking to finance large equipment purchases. These loans often come with lower interest rates and longer repayment terms, making them attractive for small and medium-sized businesses.
SBA loans can be used for various purposes, including the acquisition of heavy machinery.
Although the application process for an SBA loan is more involved than other loan types, it can be worth the effort due to the favorable terms. If you’re considering an SBA loan, be prepared with detailed financial documents and a solid business plan, as these can improve your chances of approval.
- SBA 7(a) Loan Program: The most popular SBA loan, offering flexible funding for working capital, equipment purchases, and real estate. Loan amounts can be up to $5 million, with terms up to 25 years for real estate and 10 years for equipment.
- SBA 504 Loan Program: Ideal for purchasing major fixed assets like land, buildings, and heavy equipment, this program offers up to $5.5 million with low, fixed interest rates and long repayment terms (up to 25 years).
- SBA Microloan Program: Best for smaller funding needs, such as purchasing tools, supplies, or equipment. Provides loans up to $50,000, with shorter repayment terms (up to 6 years).
When financing large equipment purchases for your construction company, it’s essential to explore all available options. Keep in mind that the right financing choice should help you acquire the equipment you need today while maintaining the financial flexibility to support future expansion.
