Purchasing used heavy equipment can require significant capital, but there are many financing options that make it more accessible. Here’s a rundown of the main ways to finance your next equipment purchase:

Traditional equipment loans

Many banks and specialized lenders offer equipment loans specifically designed for heavy machinery. These loans often require a down payment and use the equipment as collateral; they typically have terms between three and seven years and interest rates depending on creditworthiness. Some lenders may cap the loan at 80% of the equipment’s value or require a security deposit.

Equipment leasing and rent-to-own

Leasing is a flexible alternative that allows you to use the equipment for a set period while making lower monthly payments. At the end of the lease you may have the option to buy the equipment for its residual value. A rent-to-own program combines the flexibility of renting with an option to apply a portion of the rental payments toward purchase.

Manufacturer or dealer financing

Many manufacturers and brokers partner with financing companies to offer in-house financing. These programs may include promotional rates, low down payments or deferred payments; some even offer zero percent interest for a limited time.

SBA loans and other government-backed financing

The U.S. Small Business Administration backs loans that can be used to purchase heavy equipment, often with longer repayment terms and lower down payments than conventional loans.

Lines of credit and working capital loans: For buyers needing flexibility to purchase multiple pieces of equipment or cover operating expenses, a business line of credit or short-term working capital loan can be useful. Rates and terms vary but typically depend on revenue and credit history.

Tips for choosing the right financing option:

• Assess your business’s financial health and credit score; lenders will look at your cash flow, credit rating and time in business.
• Consider how long you plan to use the equipment. If it’s a long-term investment, a loan or financing plan may be better; if it’s short-term, leasing might be more cost-effective.
• Compare rates, fees and terms from multiple lenders or brokers. Some financing deals may appear attractive but include hidden fees.
• Avoid overextending your budget. Factor in insurance, maintenance and transportation costs when determining how much you can afford.

Financing used equipment doesn’t have to be complicated. By understanding the options and evaluating your company’s needs, you can acquire the machinery you need while preserving your cash flow.