Applying for heavy equipment financing – either purchase or lease – can be complicated, so its best to understand the things you need to know prior to applying:

Know Your Options

Knowing what you want — and the different options you have — is important because if you don't understand your needs, the finance company will likely dictate them to you. When this happens, you are less likely to receive the terms that match your specific situation. You need to understand what you want and what you can afford, and know how this applies to such issues as length of term, payment frequency and end-of term-options. A few examples: If you know the equipment should last you 10 years, you might not want to finance it over a short term. If you know you're only going to have the asset for three years because it's for a specific contract, you may want to finance it on an operating lease on a matching term as opposed to a straight finance type lease or loan. If you're an agriculture business, you may want to pay for heavy equipment during the harvest season when you generate income rather than paying year-round when cash flow is already tight.

Be Prepared

Before you approach lenders, you should know your financial statements and company history, and assemble this information. For application only financing, where the transaction is smaller (typically up to $150,000), you can usually complete this process with a one-page application that includes the personal guarantor's information. For larger transactions (usually more than $150,000), the lender will request three years of financial statements. If these statements have not been audited or reviewed, be prepared to provide two years of company tax returns and personal financial statements and tax returns on the guarantors or company owners. You will also need to provide a comparable interim statement for the most recent month-end. Gathering your financials and company history prior to meeting with lenders serves several purposes. You don't want to go shopping for rates and fall victim to a "bait and switch," where lenders suggest you can receive a certain rate because they think you're an A-credit when in reality you're a B or C. In addition, if you don't have this information prepared, it could delay the financing process. A completed package will turn the transaction around quicker. Finally, putting this information together in advance shows potential partners that you're organized and understand the process.

Research Prospective Partners

There are bad apples in every industry. In financing, these bad apples want to lock you into contracts that are very favorable to them, the lessor or finance company. Here are a few steps to take to protect yourself from these less-than-reputable companies: Conduct an Internet search for the company's name and look for reviews. Typically if there's a problem with the company, it will be apparent. Look up the company in the Better Business Bureau. Request references — and contact them.

Read Your Lease Documents

Too many people sign leases and send them back without a review, and this can only cause problems. You will want to look out for "gotcha" terms like notice provisions that provide guaranteed renewals without lessee agreement (called "ABC" or "evergreen" leases as the lease can continue on without lessee approval). Be careful of language that builds in extensions and turns a 36-month contract into one that's 36 months with a 12-month extension — that's more than a 20 percent additional return for the lessor. Some companies may even try to file a blanket Uniform Commercial Code (UCC) lien on your assets, which will make it harder for you to do business in the future (and may be in violation of your banking covenants). Also, do not to assume that what's in a proposal — even if you agree to it with the lessor — is what is in the lease document. Proposals sometimes state one set of terms and then the actual lease documents state another. Typically the lease document is the final document that supersedes other proposals, so compare what you received as a proposal to the language in the lease documents. Ask for copies of contracts ahead of time, and compare them as part of your review process. In addition, when you're done with the process and funded, make sure to receive counter-signed copies of all documents. Some companies will try to sign some lease documentation but not execute critical addenda, materially changing your agreement.

Be Realistic

Everyone wants a great rate, but not everybody qualifies for one. If your company has had a bankruptcy or not paid its bills timely, don't expect great rates. Expect something realistic. As a business owner or top executive, you only have so much time to spend on your business. You don't want to waste it trying to get a 5 or 6 percent rate when you will not qualify for such a rate based on your credit history. On the other hand, if you have good credit, you're in a better position to shop around to get the best deal that you can.


1st Construction Equipment Financing

1st Source Bank

Target Commercial Lending

Clear Path Financial

Wells Fargo Commercial

Exponential Commercial Finance