The vast majority of businesses don’t purchase all their tools outright because this would be expensive and cause delays. Instead, they finance some of their items. Almost everything can be borrowed or leased, including office furniture, software, industry-specific tools and machines, and security systems. If you’re looking to finance heavy equipment, you might wonder what kinds of loan or lease terms are available to you.
While it all depends on your individual situation and how stable your business is, most companies qualify for leases of up to five years, and loans can be even longer. It’s important to speak to a professional lender about your situation because there might be possibilities you haven’t yet considered. Read on to find out more about loan and lease terms and how they impact your business.
How Many Years Can You Finance Heavy Equipment?
At Noreast Capital, the most common lease terms are between 12 and 36 months. However, you can get a shorter lease, for example, if you know you’ll only need a piece of equipment for a six-month project. Alternatively, you can borrow the tools for longer if you need them for many years. Make sure to mention your desired term when you first come to speak to us.
We’ll analyze your financial situation and let you know which terms you are eligible for. We’ll also help you consider whether a longer term is better or whether you could benefit from remaining more flexible. In addition to one, two, and three-year terms, we are also able to offer our clients loans and leases that last for four or five years if necessary.
What About Loans?
Loans are often longer than leases because you have to pay off the entire balance plus the interest. Heavy equipment costs tens or even hundreds of thousands, so your business might need more than five years to repay the loan. Think carefully about how long you’re going to be needing the tool before signing up for a loan. The last thing you want is to pay for a piece of equipment your business is no longer using.
What Is the Best Term?
When you start your small business, you might think that longer terms are always better because they give you more security. But this might not be the case, especially if you don’t have projects lined up for the next years. Financing equipment for a short while can help you to remain flexible and pivot according to changing market conditions and your customers’ needs.
It’s also important to consider that you don’t always have to give back the equipment at the end of your term. If you still need the same kind of heavy machinery, you can choose to sign another lease for the same item or borrow an updated version. Sometimes, you can even purchase the tool outright, but this depends on the agreement you made with us when you first got the lease.
Lease or Loan?
Most people lease heavy equipment, which means that the lending company retains ownership, and the business is simply borrowing the tools for a monthly fee. This is a good idea because it allows you to choose whether you’d like to buy the equipment at the end of your term or give it back. It also allows you to access tools that would otherwise be too expensive for you to buy.
The alternative is a loan. This means that you purchase the equipment, but you don’t have to pay for it upfront. Instead, you pay a deposit and agree to a monthly payment, spread out over several months or years. At the end of your loan term, you will have paid off the item, which is now yours to keep. A loan can give you more security, but it can also be more expensive, and there are fewer options.
Advantages of Leasing Heavy Equipment
There are countless reasons why so many businesses lease their equipment instead of purchasing it outright. The biggest advantage is financial, since this arrangement allows companies to save a lot of money and grow their business more quickly. However, a lease can also help you to remain more flexible and gain access to new equipment more quickly than you otherwise could. Because there are lots of options, you’re sure to find something suitable.
You Can Keep Your Capital
Heavy equipment is extremely expensive. Even the smallest machines can cost $30-50,000, and some of the larger ones can set you back several hundreds of thousands. If you’re setting up a small business, you’ll have to spend months or years raising funds to pay for your machinery before you can start working. Even established companies might not have the money to spend on multiple large machines.
When you finance heavy equipment, you can start and run your business with a much smaller amount of money. Once you begin to make a profit, you don’t have to spend it all on buying new machines: instead, you can reinvest it into your company to grow it further. By spreading out the cost of your equipment, you can also make budgeting much easier for your finance team, since your expenses will be predictable.
Your Company Can Pivot More Easily
Projects that require the use of heavy equipment often last for many months or years, so you might need to use the same tools for a long time. However, market conditions change over time, and a piece of equipment that worked for your last project might not be suitable for your current one. For this reason, many companies like to have the option to give back equipment that no longer suits them.
When you lease, you can choose to return, buy, or exchange your item at the end of the term. This means that you can respond to changing markets or customer needs more quickly and therefore save both money and time.
You Can Gain Access to New Equipment
Manufacturers are continually changing the kinds of products they create. Equipment might become more environmentally friendly, cheaper and more efficient to run, and more specialized over time. If you buy your items outright, you might need to use them for a decade or more for your investment to pay off. This isn’t the case when you lease because you can simply give back your equipment at the end of the term and lease something else.
There Are Lots of Options
At Noreast Capital, we understand that there is no one-size-fits-all solution. That’s why we’ve developed a wide range of options to suit different kinds of businesses. For example, you can take out a capital lease, which allows you to purchase the equipment for a token sum at the end of the term. Alternatively, you can get a more flexible lease that lets you choose whether you’d like to give back your equipment, exchange it for something different, or buy it.
There are also specialized leases for certain kinds of companies. For instance, seasonal businesses can pay more during the busy months and less during the quiet ones, and new companies can delay payments for a few months until they have started to make a profit.
What Kinds of Companies Can Get a Lease?
Companies in virtually all industries can get a lease, as long as the owners can prove that they have a solid financial background. Lenders usually prefer to work with businesses that have been in operation for at least two years, since they are less risky, and they can provide financial documents like bank statements, supplier contracts, and financial statements.
However, you might be able to get a lease even if you’re running a brand-new company. You’ll need to demonstrate that you have assets, provide a personal guarantee, and show documents such as business plans. Initially, you might have to pay a higher interest rate, and you might only be able to borrow a limited amount. Over time, your business will build up a positive reputation, and your lease terms will improve.
The Process
Getting started with a lender like Noreast Capital is very simple. You reach out to us and tell us more about your company and the equipment you need. We will then analyze your documentation and let you know our decision within a few hours or days. If you want to borrow more than $50,000, we might want to speak to you, and you’ll need to provide more documentation than for a smaller amount.
Once your application has been accepted, you can determine the details of your lease with your account manager and then select the equipment you like. You’ll be assigned one person to work with, whom you can contact whenever you have an issue or would like to borrow an additional item.
Most business owners can finance heavy equipment for up to five years. There are lease terms and conditions available for everyone, so you shouldn’t have any trouble finding what you’re looking for. Reach out to us at Noreast Capital and ask to speak to one of our experts. We can tell you what proof you need to provide, help you fill in your application, and go through your options with you.
