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Heavy equipment will always fall into the expensive and valuable category for many businesses that need it. As a result, when financing for heavy equipment, businesses will find it to be an uphill battle – especially when they are new or struggling financially.
Even so, understanding the qualifications for getting financed for heavy equipment can help in the decision factor. After all, companies can always consider leasing too. Those qualifications are the following.
What Is Needed To Get Equipment Financing For Heavy Equipment?
Qualification for financing can be determined on 4 major factors. Those factors are:
- Time in business: age shows experience in the industry. The longer a business has been around, the more that leasing companies are willing to work with those businesses.
- Personal & business credit score: it’s common practice for companies to run credit checks. This also determines interest rates.
- Debt-to-revenue ratio: Checking this ratio helps to determine whether a business has the revenue to cover loan payments or if they will struggle to make the payments. Depending on the ratio, the approval odds could go down.
- Business plan: It’s common in more traditional financing; however, this also could be a requirement for newer businesses. A business plan provides a blueprint, and it gives lenders an idea of what the equipment is going to be used for. This also helps as lenders will request additional information like personal IDs, bank statements, tax returns, price quotes, and void cheques.
How To Get Approved With Bad Credit
Based on the qualifications above, some may feel disheartened – especially when they know they have bad credit or are a new business. While the process is difficult, there are various ways for businesses to get approved for financing in Canada. Some considerations for financing or leasing for heavy equipment can be:
- Applying for online/alternative lenders that have easier approval standards. Do note that these alternatives can result in paying for higher interest rates and fees than others
- Finding lenders/providers that have good credentials and reviews
- Find a way to boost the current and projected revenue wherever possible
- Offer more collateral to the lender
- Make large down payments (at least 20% of the price or more is ideal)
- Pay off existing business debt first before financing
- For those who filed for bankruptcy, wait until finances and credit have recovered fully before applying
Using Collateral To Get Approved
Collateral is a requirement with most heavy equipment purchases, especially when large loans are going to be needed. In these instances, the lender will take possession of an asset in order to protect their investment in the event of a default payment. In this manner, the collateral can be used to recover lost costs.
As far as collateral goes, the heavy equipment that’s leased tends to be the collateral. As such, leasing is smarter than seeking financing since leasing won’t ask for down payments or collateral.
How Long Are The Terms For Heavy Machinery Loans Or Leases?
There are various factors that determine how long the lease or terms last. These factors are:
- Where the business is applying in the first place
- Whether the heavy equipment is financed or leased
- How much of a down payment is being offered – if any
- How strong the finances and credit scores are
- How much value will the equipment retain over the years
If the plan is to use the equipment full-time, a repayment plan for many years could be needed to pay for the equipment in full. Alternatively, loan terms can be upwards of five – or even 10 – years, though they often offer shorter rental terms with renewal options. This can also work in a customer’s favour as small loans will have fewer fees and interest payments.
What Kind Of Interest Rates Do Heavy Machinery Financing Companies Offer?
The interest on heavy equipment will vary due to several factors – such as where people are applying or how financially healthy a company is. Those who have bad credit or struggling financially will find it not only harder but be charged with higher interest rate payments compared to those who are in a better financial situation.
To get the best low-interest rates, and appealing loans/leases terms, it’s important to prove a company is creditworthy. This can be achieved by:
- Having solid revenue streams
- Having good personal and business credit scores
- Having none or very little debt
- Offering a down payment for the equipment – typically 20% minimum
- Offering some additional collateral
- Avoiding bankruptcies or consumer proposals – or haven’t had any in recent years
Where Is A Good Place To Get Financing Or Leasing?
Get started leasing or financing the equipment you need. Contact Yellowhead Equipment Finance today to get started. We’ll help you identify your eligibility, work with you to understand your options, and work with appropriate lenders to get the best solutions for your financing needs.