For construction companies, getting access to short-term capital can often be a challenge. Frequently, banks and other traditional lending sources have prohibitive loan requirements, and the time to process loan applications often exceeds the immediate need for capital. However, many construction company owners are looking inward and using their own equipment to get extra working capital through equipment leaseback financing programs. We are going to clear up a lot of confusion about this type of financing and how it works, as well as the advantages it offers to business owners.
How Equipment Leaseback Financing Works
The most basic requirement for equipment leaseback financing is that construction companies can only use equipment they own. When that equipment is used for leaseback financing, business owners can usually get up to 50% of the total value. The amount of money given to businesses has repayment terms ranging from three to five years, and the monthly installments are scaled to the construction company's credit ratings. This gives construction companies the funding they need, while still retaining access to their equipment.
Advantages Of Leaseback Financing
Most equipment leaseback financing agreements have longer terms and lower payments than traditional short-term bank loans, and can be arranged more quickly. Even with challenged or bad credit, business owners can qualify for this type of financing because it is based on the equipment owned by the business. Even new businesses without the credit history to qualify for more conventional loans can access leaseback financing with their own equipment. In most cases, payments made on leaseback financing are categorized as “operating costs,” and depending on how the agreement is structured, those payments become a tax write off.
The One Big Drawback
Business owners should know that when applying for leaseback financing, the equipment pledged in the agreement is also considered collateral. Defaulting on the agreement means the financing company will take full possession of your equipment. However, given the flexible terms and low rates of equipment leaseback financing agreements, business owners rarely slide into the danger zone with payments.
If you own a construction company and would like to learn more about equipment leaseback financing and how much money you can get for your equipment – or if you would like to know what other financing options and solutions we have for contractors and construction owners, contact the Lavan Financial Group at 203-308-4547. Our team of experts can help your business get the capital it needs.