New construction machines enhance operational efficiency in different industries, such as construction and manufacturing, to help businesses stay competitive. However, upgrading machines typically involves significant upfront costs. As a solution, financing new equipment purchases makes it easier for your business to acquire the latest machines to boost your operations.
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The Importance of Construction Equipment Financing
If you need new heavy machinery, financing lets you purchase, lease or rent a new machine while reducing expenses. Equipment financing enables businesses, especially small and medium-sized companies, to access new machines while freeing up their budget for other operating costs, like renting a warehouse or hiring more employees. It’s a good option if you’re starting your company or expanding your operations.
Like a loan, equipment financing spreads out your payments over several months or years until it’s fully paid or you’re done renting or leasing the machine. Securing favorable loan terms, such as a low interest rate and a fair payment schedule, will make payments more manageable. As a result, it allows you to use new heavy equipment without straining your cash flow.
Types of Heavy Equipment Financing Options
The three common types of equipment financing are purchase financing, lease financing and equipment rental. The kind of financing you can secure depends on many factors, such as your business’s credit score, capital, company background, operational needs and other financial markers. Lenders like commercial banks, online banks, loan companies and dealers offer various equipment financing programs.
Establishing a good personal credit history helps you apply for any loan, including equipment financing. This translates into a higher business credit rating, which aids in securing an equipment loan, lease or rental approval with better interest rates. For a loan, the interest rate is the percentage you agree to pay on top of the borrowed amount. Securing favorable terms will help you pay off financing on time.
Learn more about the different types of equipment financing below:
Financing to Purchase
Equipment purchase financing involves finding a lender who will provide a loan to buy a new machine. Once your loan is approved, your lender typically provides up to 80% of the equipment’s value while you cover the down payment. As the borrower, you agree to pay down your loan within a specified duration. If you intend to own equipment that you’ll use long-term, this type of financing can work for you.
According to the Corporate Finance Institute, interest rates for equipment purchase financing range from 4% to 30%. Meanwhile, the payment period can generally take as long as 10 years. These loan terms are based on many factors, including your business and personal credit ratings, how long your company has been operating, and the estimated life span of the machine.
If you choose this option, the equipment is used as collateral to secure the loan — meaning the lender can repossess your equipment if you “default” or cannot make monthly payments on time. Reviewing your finances thoroughly will help determine if you can consistently cover payments.
Lease Financing
In leasing equipment, a dealer allows you to use their machine in exchange for monthly payments over a fixed period of time. It usually does not require a down payment and offers rates sometimes lower than purchase financing. Some dealers may provide a lease-to-purchase option, meaning you can buy the machine by the end of the lease.
If you’re not looking to own, you don’t need to worry about maintenance and reselling machinery. You’ll only need to lease for as long as you need. However, if you cancel your lease sooner, be mindful of penalty fees. Consider leasing machinery if you’re looking for a short-term loan while keeping your monthly payments low.
If you use the equipment longer, the cost of leasing may exceed the machine’s value. For example, if you renew your lease, the dealer may also renegotiate to increase fees or interest rates. In this case, searching for a more favorable machinery financing solution is better than renewing a lease.
Rental Equipment
Similar to lease financing, renting allows you to use a machine for a specific time. Equipment rental is more suitable if you need a machine for a shorter time. Dealers may offer monthly, hourly, daily and weekly rental rates. Some equipment dealers may also provide a “rent-to-buy” option, allowing you to purchase the machine before the contract ends.
Reliable rental equipment is ideal for completing tasks outside your usual services. This way, you can be flexible in taking on new projects without immediately buying a new machine. It also reduces maintenance and storage costs because your dealer mainly takes care of them. If you’re looking to try new equipment more often, renting machinery might work for you.
In general, leasing and rental financing are practical options in these situations:
- Avoid upfront costs: If you don’t have down payment funds to buy a machine, you can lease or rent.
- Try new equipment: Leasing or renting is a wise way to test a machine before purchasing it. If you prefer a different machine, you can complete the lease or rental period and keep searching for the right equipment.
- Change equipment frequently: If you want to continuously upgrade your fleet, consider leasing or renting, especially when upgrading in less than three years.
Determine the Right Financing Option
Before committing to an equipment financing program, it’s best to research and do the following:
- Estimate use duration: Classify which machines are for long-term and short-term use. It’s practical to own your main fleet while renting short-term equipment for other projects.
- Compare financing options: Look for lenders or dealers that offer the lowest interest rates. Choose favorable payment terms that will not disrupt your cash flow.
- Calculate total costs: Make realistic financial projections and evaluate your capacity to make payments for a loan, lease or rental contract. On-time payments are crucial to prevent equipment repossession or penalties.
Purchase or Rent New Cat® Equipment From Thompson Machinery
Finding equipment financing solutions is key to accessing new equipment for your business. Ready to get started? Contact Thompson Machinery to upgrade to powerful new equipment.
Whether purchasing or renting, we have the equipment you need to handle small jobs and large projects. We offer extensive construction and landscaping equipment, including mini excavators, backhoe loaders, skid steer loaders and more, with over 300 models of new Cat® machinery to meet your requirements.
With over 75 years in the business, Thompson Machinery is your trusted dealer for the latest Caterpillar machines throughout Middle Tennessee, West Tennessee, and North Mississippi. When you work with us, we’ll take the time to understand your needs and recommend the best equipment for the job. If you have questions about our machinery financing solutions, we invite you to request a quote by filling out our contact form.
