Heavy Equipment Financing: What to Know Before Applying

Q: Who finances industrial equipment?

You can access heavy equipment financing from a variety of sources. Traditional banks may offer this type of loan, and online equipment financing companies are also convenient options that frequently offer fast funding. A third option is to work with an equipment vendor that offers direct financing.

Q: What is a heavy equipment loan?

A heavy equipment loan lets you finance the purchase of large industrial or construction equipment. At the end of the loan term, you own the equipment outright. Until then, you must make regular payments on the loan, which goes towards both your principal and interest. There may be other fees involved as well, like a loan origination fee or other lender charges. The heavy equipment itself serves as collateral, meaning the lender can repossess the equipment if you default on the loan. In some cases, you may also need to make a down payment, especially if you have poor credit. Because heavy equipment and machinery can be so costly, heavy equipment loans make it possible for companies to lessen the burden by spreading it out over time.

Q: What's the difference between equipment leasing and equipment finance?

Both options involve regular payments for use of the heavy equipment, but the main difference comes down to ownership. Equipment leasing is just like renting the asset — you pay monthly payments for a set period of time, then return the equipment at the end of the lease period. If you choose financing, when you pay off your loan, you own the equipment. If you lease but find you don’t want to return your equipment, you may have two additional options. First, you may be able to renew your lease to continue the existing arrangement with the leasing company. Alternatively, you may be able to purchase the heavy equipment outright at the end of the term.

Q: How does financing construction equipment work?

Construction equipment financing is similar to taking out any other type of loan. You can often apply online and, once approved, the lender may either pay out the funds to you or pay the equipment vendor directly. Then you’ll start making your payments, usually on a monthly basis. Heavy equipment financing may last up to five years. Some financing companies also allow you to roll soft costs into your loan amount, up to a certain percentage. Soft costs may include things like delivery, installation, or taxes, which can add up quickly. Including these items will add to your loan balance, but also put less restrictions on your business cash flow.

Heavy Equipment Financing: What to Know Before Applying

Lauren WardUpdated April 19, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Paying up front for expensive heavy equipment for your company isn’t always possible and it may not be the best way to use your cash reserves anyway. Instead, many business owners turn to heavy equipment financing to spread out the cost and make smaller payments over the term of a loan. Read on for a closer look at heavy equipment loans, including what options are typically available, what to expect from financing companies, and what to watch out for.

How Does Heavy Equipment Financing Work?

When you buy heavy equipment outright, you generally have to pay out a significant amount of cash all at once. That may potentially strain your finances. One alternative is to get financing for that purchase. While you may need to pay a down payment up front, the rest of your payments will be spread out over time. There can be charges (such as a loan origination fee) involved, too.

Differences Between Heavy Equipment Financing and Leasing

Acquiring heavy equipment through financing may sound similar to leasing, since both generally require regular payments for the use of your equipment, but there are differences.Perhaps most important, when you lease vs. buy equipment, at the end of your contract you generally give back the equipment (though you may also have the option to buy the equipment with a “balloon” payment at the end of the lease period). But if you get financing, when you finish making your payments, you keep the equipment.

Requirements for Heavy Equipment Financing

When you apply to finance heavy equipment, lenders typically look at several different factors before making a decision. In most cases, they look at the age of your business. They may have a minimum requirement, such as one year or more.Lenders may also look at your credit score to determine whether or not you qualify for financing and, if you do, what kind of rates to offer you. They could look at your personal score, your business score, or both. Before submitting a pre-approval request or loan application, find out whether you’ll be subject to a hard credit pull, since that can negatively impact your score. Another factor a potential lender may consider is your business revenue. This number may affect how much you’re allowed to borrow for heavy equipment.Finally, lenders may take into account your down payment and any collateral you hope to use to secure the loan. A larger down payment may make up for a lower credit score, since it means that if you defaulted, the lender would have less money to recoup. The heavy equipment itself may also be used as collateral. If you stop making payments, the lender can simply seize and re-sell the equipment.

Types of Heavy Equipment

There are a number of types of heavy equipment you can finance, including industrial equipment and construction equipment. Heavy equipment financing includes different machines than more general equipment financing, which can include office technology or restaurant equipment. Machinery that generally qualifies for heavy equipment funding can include (though it’s not limited to):

Commercial vehicles
Bulldozers
Forklifts
Generators
Farm equipment
Cranes

Additionally, financing is available for both new and used heavy equipment, giving you a fair amount of flexibility in the types of assets you can fund.

Applying for Heavy Equipment Financing

Traditional banks may offer heavy equipment financing, but online heavy equipment financing companies typically have an easier application process.You’ll probably need to gather some documents to submit. While the exact requirements vary from company to company, you can expect to include your tax returns (both business and personal), recent business bank statements, and other financial statements. Also be ready to provide details about the equipment you plan to finance, including any information or quotes you’ve received from equipment vendors.The time it takes for a company to make a decision about your heavy equipment financing is often short. Depending on the lender, and how quickly they can collaborate with your equipment vendor, the entire process could be completed within a few business days.

Sample of Heavy Equipment Financing Companies

if you’re shopping for a small business loan. Here’s a look at four top lenders (based on a Google search for “best heavy equipment loans” conducted on April 13, 2023) that offer heavy equipment financing. To find out what the interest rate is, you generally need to apply for quote on their website.

Financing Company	Minimum Credit Score	Required Time in Business	Maximum loan amount
National Funding	National Funding	6 months	$150,000
Currency	625	2 years	$500,000
Crest Capital	Not disclosed	6 months to 2 years (depending on loan amount)	$1 million
US Funding	Not disclosed	6 months to 2 years	$50 million

What to Watch Out For

There are a few things to be alert about when it comes to heavy equipment financing. First, you’ll want to understand the total financing costs. To do this you’ll want to compare annual percentage rates (APRs), which include both the interest rate and fees. In addition, it’s a good idea to check that the length of the loan term matches up with how long you anticipate using the equipment. If you expect to upgrade to newer equipment before your loan term ends, it might make sense to lease instead.

Tax Implications of Heavy Equipment Financing

Tax law is complicated and it can be confusing to figure out if you’re eligible to take advantage of the different options, so it’s always a good idea to consult with a tax professional if any of these strategies interest you. That said, if you are eligible, financing heavy equipment may provide some tax benefits to help offset the costs involved.As with other types of financing, you may be able to deduct the interest you pay each month as a business expense.Section 179 of the U.S. internal revenue code also lets you opt to deduct the entire cost (up to certain limits) of the equipment the year you actually acquire it. The alternative is to depreciate the equipment’s cost each year..

Options for Bad Credit

Qualifying for heavy equipment financing with bad credit isn’t impossible, particularly because the loan has a hard asset tied to it. Demonstrating that your business revenue is large may help overcome a lower credit score on your application, since good cash flow suggests you will be able to repay the loan. Every lender is different and has its own preferences, but you might also consider making a down payment, or, if that’s already built into your financing, a larger one than the lender requires. Since a down payment means you’re essentially paying for some of the cost upfront, it shows that you’re invested in making your payments on time — otherwise, if you defaulted, you’d lose that cash, in addition to the equipment. Another option is to consider leasing instead of financing your equipment.

Finding Heavy Equipment Financing Options

Heavy equipment financing can be a convenient way to grow your business without depleting your cash reserves. While you’ll pay interest on the amount you borrow, you can spread out payments over a manageable period of time, rather than paying a lump sum up front that could be hard to afford.If you're interested in exploring your business financing options, Lantern by SoFi can help. With our online debt financing marketplace, you can search for small business loan options without scouring the web and checking multiple sites. With one short application, you’ll be matched with a loan offer that meets your company’s needs and qualifications.Let Lantern help you find the right financing solution for your small business.

Frequently Asked Questions

Who finances industrial equipment?

What is a heavy equipment loan?

What's the difference between equipment leasing and equipment finance?

How does financing construction equipment work?

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About the Author

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.

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