Financing Used Construction Equipment: How to Find the Right Fit For You
After you’ve found the perfect piece of machinery to add to your fleet, you still need to decide how you want to pay for it. Do you want to finance the purchase, sign a lease agreement or pay cash?
And, if you plan to work with a financial institution, who’s going to give you the best terms and respond quickly so that perfect machine can get to work making money for you?
There are a lot of questions to think through when it comes to choosing the right financial options. Luckily, if you’re working with a member of the Independent Equipment Dealers Association (IEDA), the process doesn’t have to be so complicated. IEDA has several associate members that specialize in financing used heavy machinery. These organizations work directly with each IEDA member and understand the unique qualities of your business. And with the combined buying power of the association, IEDA customers will receive the best rates and programs, as well as a quick decision.
Why Use Financing
Financing your used equipment frees up your working capital and helps to protect your company from any unforeseen emergencies or opportunities that will inevitably happen. IEDA association member, Mark Boyer of Direct Capital, tells his customers to think of their equipment like they would an employee and let the machine pay for itself. “If you have a machine that has a monthly earning potential of $5,000 each month and a fixed payment for that machine of $2,000, then every month that machine is netting you $3,000 in profit,” he explains, “and that’s how a machine pays for itself.”
“You would never pay an employee upfront for services to be rendered,” Boyer adds. “And they should avoid doing the same thing with their equipment. Instead, use your cash reserves to grow the company and as a safety net when economic conditions change.”
Your dealer will get the financing process started for you with the help of one of IEDA’s financial solution providers including Direct Capital and Ascentium Capital. “We have a dedicated team that works with the IEDA and another that works directly with customers,” says Boyer. “Throughout the process, you’ll receive one-on-one interaction with one of our representatives, so we can walk you through all of your options until we find the right fit for your needs.”
To find the right financing option, Boyer says the process involves answering a lot of questions to determine what’s important to you. You will be asked questions such as:
• What kind of work do you do?
• What is your busy season?
• Will you keep the machine busy year-round or just at certain times?
• How many years do you plan to hang onto the machine?
“Questions like these help us begin to craft a package that fits the needs of our customers,” says Boyer. “Some people are looking for the lowest monthly payment, while others would prefer to pay more during their busy season and less when the machine isn’t being used on a regular basis. Also, for those who don’t plan to hang on to a machine for more than a couple of years, they may be better off in a leasing agreement.”
After you’ve selected the right financing package and fill out a little paperwork for the approval process, you’re ready to take delivery of your machine. Boyer says the whole process usually takes less than a couple of hours, and they can usually approve a package quickly.
Financial Institution Versus a Bank
If you like to look around at all of your financing options before making a decision, you may want to check with your local banks, which typically have a longer processing time than financial institutions specializing in the equipment industry. “Often, banks take longer because of the diversity of their customer portfolio,” says Boyer. “And, very few work with contractors purchasing hundreds-of-thousands of dollars’ worth of equipment, so they don’t understand the unique needs of the industry. Therefore, they offer less flexible options and tend to have higher interest rates.”
In addition, banks’ application process is usually more involved, you may have to wait up to two weeks for approval, and often they will require you to put more money down up front, which cuts into your working capital.
What Matters the Most
And as with any business relationship, the most important consideration for working with a financial institution is finding someone who is honest and trustworthy. When you’re investing in a piece of equipment, having a financial institution that is attentive and responsive to your needs makes a big difference.