The purchase of a large piece of machinery is not something to be taken lightly. It can take some serious thought and planning to decide what the best option would be for a specific company.
Below are some options available for the purchase of heavy equipment in general and tips on which would be best depending on where a company stands.
Leasing
This would be one of the better options for a just-starting-up business that doesn’t have a very substantial amount of cash handy. Since the payments don’t show up as debt, the company’s financial statement is not affected.
Getting approval for a lease is usually a pretty quick process, sometimes only requiring a few hours. And if the company so desires, maintenance can be included.
Heavy Equipment Financing
Public Banks
This would be the better option for a company that wants to actually own the piece of machinery. The best option would probably be to turn to a bank to help out, since their interest rates would most likely be the best ones you’ll find. However, pristine credit will most likely be required in order for the bank to be willing to let you borrow the money.
Private Investor
If, by chance, the bank turns you down, all hope is not lost. There is always the option for a private investor. Now, the interest rate will not be quite as good as the bank, but the investors’ helpfulness in other areas can make up for the difference.
Hard Money Lender
A third option would be a hard money lender, or an investor with a large amount of money who lives in the area of the company looking for a loan. This would be a private loan, so there aren’t any restrictions or limits for the agreement. This lender could only be interested in a short-term agreement, or they could be interested in owning a portion of the business. This option, however, would probably have the steepest interest rates.
Examples
Getting a look at actual numbers for specific machinery can help you to visualize things better. Let’s say you need to buy a plasma cutting table for your business. The prices for these usually run between seven and nine thousand dollars. So, for the sake of simple math, let’s say the one you want costs $8,000.
Suppose your good credits lands you a loan from a bank. You plan on paying the loan off in a year, so the amount you will pay each month is going to be about $667.00 plus interest. The same could go for private lenders, but as was said before, the interest will probably be higher, meaning you will end up paying more as time goes by.
Now let’s say you want to buy a hay baler for $17,000. The same concept applies. It’s a significantly larger amount of money, so let’s say you’re shooting to pay it off in two and a half years. That would be about $567 per month. John Deere is one company in particular that offers in season cash bonuses, or 0%-3% fixed rates depending on the terms of the contract.
This time, let’s say you are working with a private investor. Your interest payment is going to be somewhat high compared to a bank, but maybe the investor has a mind for the agricultural business. The advice or opinion of this investor to help you make other decisions could make up for the interest you are paying them and help you to make wise financial decisions down the road as well.
There are many options when it comes to financing for large equipment. The company where you buy the equipment should also have financing options, so working with them can be beneficial. After all, you are buying their equipment. Who would know better than them?
In the end, the most important thing to remember is to make sure you are getting equipment of high quality. Without that, any financing you do is wasted.
