Trucks and heavy equipment are large outlays of cash for a business. When you choose to finance trucks and equipment instead of purchasing them outright, you get the funds necessary to grow and make crucial investments in your business. These investments can help improve your business’s efficiency and even profitability. However, you may be wondering about interest rates and whether now is a good time to finance a large purchase.
Learn more about the average interest rates on equipment loans, how to obtain one, and whether or not you qualify.
Average Interest Rates on Truck and Equipment Loans
After years of declining interest rates, pressure from supply chain and manufacturing challenges are starting to nudge interest rates up. However, one thing that sets off specialty equipment financing from other financing is that the equipment is the collateral for the loan. Due to the strength of this collateral, you can usually obtain equipment financing at interest rates ranging from 6% to 9%.
Of course, the better your credit history, the better your rates. However, as a small business owner, your personal credit history can also play a role in your interest rate—not just your business’s credit history.
Interest paid on your financing can be tax-deductible for your business, which is another advantage to financing your equipment purchases. You can sometimes roll soft costs into the financing as well. Soft costs can include delivery charges, sales and use tax, and even expenses related to installation and training. You are essentially getting 100% financing for the equipment by rolling these costs into the financing.
How to Obtain Equipment Financing
Obtaining equipment financing involves finding a lender, usually a bank or financial institution, or financing through the dealer. The application process, how much you can borrow, and the type of financing available varies depending on which lender you choose. However, financing provided by a specialty lender can offer some advantages over traditional banks and financial institutions.
First, the application process may be faster and easier since the specialty financing companies are more familiar with the equipment and the businesses that use them. In addition, the financing can usually be arranged at the time of the sale and doesn’t require you to go back and forth between the dealer and the bank, which can sometimes cause delays. Additionally, you and the dealer may have a better working relationship because the dealer may also support the maintenance of the vehicles, and a bank would not. And when it comes time to replace the equipment, the dealer can partner with you on a replacement strategy that makes sense for your business.
How to Qualify for Equipment Financing
There are a few factors that come into play before the lender decides to move forward with the financing. Despite any challenges you are experiencing with your business or credit, you may still qualify for financing. Most importantly, lenders must have the assurance that the money being lent to you will be repaid. Your credit history is just one part of the qualifications that give that assurance.
Don’t forget that, as mentioned above, the equipment being financed becomes the collateral for the loan. This factor doesn’t just help keep your interest rate lower; it also helps you to qualify for equipment financing. If you fail to repay the lender, they can seize the equipment from you. Therefore, collateral considerations can make you eligible for equipment financing, even if your credit or cash flow is not optimal.
Lenders might also look at your overall business picture rather than a set of rules around credit history or cash flows. An equipment financing company says, “Lenders know that equipment purchases help a business grow and generate more revenue. Financing equipment is one way to re-invest in the business to grow. So, lenders will consider a strong business case in their decision to extend credit.”
But exact qualifications can vary from lender to lender as well as by equipment type. That’s why it’s best to speak to a lender directly about your specific needs and qualifications.
Get the Best Interest Rate for Your Equipment Loan
Up-to-date equipment keeps your business efficient and profitable. If you’re thinking about financing new or used trucking or equipment, the current interest rates range from 6% to 9%, depending on your credit. So now is still a good time to finance equipment for your business growth.