No construction company can sustain or grow their business without the right heavy equipment fleet. Machines age, so you need to replace them. Or you win the bid on a great new job. But it’s bigger than your usual project. Or more specialized. So you need to expand your fleet. But construction equipment is expensive. It doesn’t matter if you need a mini-excavator, a grader, an asphalt paver or something for your recycling operation. Small business loans can help, whether you purchase new or used.Even well-established firms have to borrow money to secure the machines they need to bid, win and complete jobs. Yet so many contractors I talk to are afraid to borrow. Or unsure how to proceed. They’ve heard so many myths about financing they don’t know what to believe.
Here at United Capital Source, our mission is to help small businesses succeed and grow. So let’s talk about what type of small business loans are best for heavy equipment financing.
“BEST” IS A RELATIVE TERM
Your company’s long-term goals and short-term needs are unique. Each job has its own unique set of special requirements. But there are some universal truths about small business loans. When you need to purchase heavy equipment, the best loans:
- Are right-sized for your current need. As expensive as equipment is, over-borrowing is not a good idea. You’ll have higher payments. You’ll spend more in interest over time. You could be using that extra money for something else.
- Offer the right borrowing program for your firm. There are a lot of lenders out there. They are not all the same. Your business bank isn’t the same as another bank when it comes to loan terms or approval requirements. Alternative business lenders vary widely, too. Best is what’s most advantageous for you, not anyone else.
- Give you the flexibility you need. That includes payment amount and timing.
- Can boost your business credit rating. A lot of contractors and other small business owners think of business loans only as an expense. But the right small business loans can help improve your credit. You can go from good to great. Or bad credit to better.
Let me expand on that last point. You know you’ll eventually have to borrow money if you want to expand. But construction is a not an easy industry. The work is tough, and so is maintaining a decent cash flow. Bad credit can happen even to good business people. When that happens, it can sidetrack your growth plans. I’m here to tell you that the right small business loans can, in fact, help repair your bad credit.
SO WHICH SMALL BUSINESS LOANS ARE BEST?
Many heavy equipment manufacturers offer financing for their products. John Deere is just one example. They admit that, for contractors “looking to finance equipment, the process can often be difficult and confusing. By recognizing the top five challenges contractors face in financing and understanding why these occur, contractors will be able to navigate the financing process with an arsenal of knowledge.” Among those challenges:
- Your credit history. What if you have shaky credit? If you can “show a history of commitment, even in a difficult situation like a recession,” lenders may be more open to helping you.
- Your profit history, and managing your cash flow. “Underbidding to win jobs can quickly damage profitability and cash flow,” they warn. You need a stable profit margin and proof that current work will enable you to repay the loan.
OEM financing might be an option for your firm. But it isn’t necessarily your best choice.
Do you need more than a new machine? Maybe not, if your goal is to replace a unit that has aged out. Or to add a specific piece to your fleet. But what if you’re ramping up for that big new job? Or some other type of business expansion? Some small business loans that help you buy heavy equipment can also be used for other purposes. You could borrow money once to cover multiple needs. Depending on your situation, that may be far more cost-efficient.
With SBA 504 loans, you can purchase real estate as well as heavy equipment. That makes this a good alternative for financing a new construction project. However, you cannot use a 504 loan for general working capital. With SBA 7(a) loans, you get working capital you can use to purchase equipment, vehicles, supplies, or pay operating expenses.
But these standard loans are time-consuming and require mountains of paperwork. You’ll wait months for approval (or rejection). UCS offers an attractive alternative we call SBA Marketplace loans. With good credit and business history, you may borrow up to $350,000. This hassle-free alternative is fast and offers very favorable terms. Talk to us to learn if you quality.
SHOULD YOU LEASE INSTEAD?
Sometimes leasing is a better heavy equipment financing option. But there are definitely pros and cons. Do you need the machine permanently? Or for a single job? Understanding the fine print of leasing can be as complex as looking for the best business loan. So talk to your tax advisor, and pencil it out. And remember, you can always purchase the machine once the lease expires.
USING EQUIPMENT AS COLLATERAL
We’ve been talking about small business loans to purchase new construction machinery. But there is another kind of “heavy equipment financing” that could benefit your firm. You can use your paid-for fleet as collateral for small business loans. Your equity in those assets can help finance other business needs. That gives you working capital for virtually anything. Because the value of these assets continues to depreciate, this is best for short-term needs such as:
- Purchasing materials and tools
- Hiring more people
- Catching up on bills
- Carrying you through the slow season
Without the right equipment, your construction firm cannot grow. Small business loans can help with heavy equipment financing. Knowing your options gives you flexibility to operate more efficiently. And plan more effectively. You can fill out your fleet. And be prepared to take on the next great job.