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Considering Construction Equipment Loans? Read This First

Emily Suess

Emily Suess is a freelance blogger and copywriter specializing in technology and small business.
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

Wondering if a construction equipment loan can help your small business? Curious what you can purchase with funds from an equipment loan? Read on to learn more and decide whether a construction business loan is right for your business.

Reasons to Apply for Construction Equipment Loans

An equipment loan is a good option to help you buy the machinery, vehicles, and other equipment your business needs. There are a few advantages to construction equipment loans that make them particularly helpful:

  • They provide quick access to cash
  • They require limited paperwork
  • The equipment itself serves as collateral for the loan
  • Equipment loans can help you build your credit
  • There are potential tax benefits associated with equipment loans
  • It’s possible to get a loan even if your credit is bad

One possible alternative to construction equipment financing, also called heavy equipment financing, is leasing your business equipment. Leasing may have some advantages. However, the biggest drawback is that you don’t own the equipment when the lease ends. When you pay off a construction equipment loan, the equipment is totally yours. But, if you’re looking to purchase equipment that becomes obsolete quickly, leasing might be better for you.

How Construction Equipment Loans Work

An equipment loan can be used for many different equipment types, but the amount of money you can borrow is determined by the type of equipment you intend to purchase and whether it’s new or used.

These loans are similar to car loans in that the equipment you purchase is the collateral that secures the loan. That saves you from having to put up any additional collateral. In most cases, the loan you obtain will have a fixed interest rate anywhere between 8% and 30% with a set term length. Your payments will be the same every month, making it easy for you to budget for the expense.

How long you will make payments on the loan depends on a couple of factors, including the expected life of the equipment you purchase. Lenders are not typically willing to extend the term of these loans beyond the expected life of the equipment. For instance, if you financed several computers you should expect a relatively short repayment timeline. After all, electronics become obsolete quickly — that’s just the nature of technology.

Determining Your Costs

Although you will pay more for your equipment in the end, the benefit of equipment financing is that it prevents you from having to pay the entire purchase price upfront. So rather than struggling to come up with $10,000 all at once, you could potentially pay just a few hundred dollars each month for the life of the loan. For instance, if you purchase the same $10,000 piece of equipment with a three-year loan that has an APR of 12%, you’d end up paying $11,957 in total. The benefit is that your monthly payments would be much easier to handle at $332.14 each. As well, you’ll get to have that asset on your books, which wouldn’t be the case if you were leasing the equipment — always a plus.

How to Qualify

Many businesses will find it’s easy to qualify for construction equipment loans. But, come to the table prepared, knowing exactly what will influence your loan application. The variables that determine how much you can borrow include the value of the equipment, your credit rating, and your business history. Because the equipment you purchase serves as collateral for the loan, you can even obtain this kind of financing with a less than perfect credit history.



Emily Suess

Emily Suess is a freelance blogger and copywriter specializing in technology and small business.