As banks, finance companies and non-traditional lenders emerge from a decade-long caution regarding the extension of credit, they are looking to financial avenues previously given little attention. One area of interest that has grown over the last few years is that of used construction equipment. This is due in large part to a nation-wide surge in home building and commercial construction. While equipment finance lags behind these activities, it does follow rather consistently. Another factor redounding in favor of used equipment is the slowness with which manufacturers and retailers are delivering new machinery. Whatever the causes, the lenders are gladly taking the business.
Why Is Used Construction Equipment Financing So Attractive?
Actually, at present, there is little downside in robust used heavy equipment financing. The commercial customers are benefiting from an economic boom and making their monthly payments promptly. Still, although an uptick in loans is noticeable, it remains a very small segment of the finance market. Nevertheless, firm owners are being prudent about how and where to invest their resources, When they take into account the specific tasks they assign to each piece of machinery, they will opt for used apparatus to save costs. Given the strict quality control criteria banks and finance companies place on this mechanical collateral, the equipment is generally certified to be in excellent working order.
Forecasters see the trend toward more loans on heavy equipment continuing into the future as contractors receive more orders than their current fleets can comfortably handle. While housing starts declined in recent months, construction permits soared by 8.4 percent, boding well for the future and possibly giving confidence to lenders. Additional positive currents include a public demand for infrastructure upgrades as well as low prices for gas and oil.
How To Get A Loan for Used Construction Equipment
As with most forms of financing, these types of loans are subject to a procedure that begins with the credit report for the firm owner (or whoever submits the application). A FICO score of 620 and above, along with one continuous year of firm operation, ordinarily leads to a loan with little nuisance or distress. The good news is that applicants might still qualify even if their credit is less than stellar. As a business, the cash flow stands equal to — if not greater than — credit indexes. Should the business revenues impress the underwriters, they can drop credit reputation down a few rungs on the priority ladder.
Another way to offset poor credit is to offer a generous down payment. Since this makes the loan smaller, it can increase the underwriters’ comfort level regarding approval. Twenty percent of the purchase price could make a skeptical lender think twice.
Is Leasing a Better Option?
Leasing does not build equity in equipment, but simply pays for the right to use it exclusively for a fixed term. If the equipment is regularly modernized by the manufacturer, leasing allows a builder to take advantage of newer machines.