Companies operating in the construction industry need to acquire a wide range of heavy equipment to undertake their customers’ projects. These assets generally include excavators, bulldozers, tower cranes, wheel tractor scrapers, compactors, and dump trucks. However, purchasing the necessary equipment outright is out of the question for many of these enterprises. The exorbitant price tag the manufacturers quote on their equipment is beyond the companies’ budget allocations. This is why the officials of these corporate enterprises have to look for alternative options to finance their equipment acquisition. One scheme the companies generally opt for is construction loans.
Construction loan – How does this lending scheme differ from other equipment financing options?
A construction equipment loan is a lending scheme that companies can avail to pay for their heavy equipment acquisition. Under this mode of finance, the enterprises can use the funds to buy the construction equipment they need. Many reliable financial institutions, including commercial banks, are willing to offer this scheme to them. These lenders generally offer competitive interest rates and favorable repayment options for the sum of money they disburse to the borrowers. However, the tenure of the construction loan will depend upon the amount the companies need for their heavy equipment acquisition. In many cases, this term of the loan can be up to 10 years.
Characteristics of the lending scheme
The salient features of a construction equipment loan that distinguishes it from other similar financing options are as follows:
- The companies can secure the construction loan using the construction equipment they buy as collateral,
- The borrowers can use the funds from the scheme only to acquire the equipment,
- The lenders generally disburse funds equivalent to approximately 95% of the price of the equipment, and
- There is no need for the borrower to provide a down payment under the scheme.
Eligibility requirements
Companies need to fulfill the following stringent criteria to apply for a construction equipment loan from a reliable financial institution:
- The companies need to have an exceptionally good credit score and provide documents certifying it,
- Every director, executive, and top officials of these companies should have a fairly high credit score,
- The companies need to submit relevant documents describing the nature of their business and construction operations,
- Provide relevant documents to verify the equipment acquisition transaction, such as the purchase invoice
- Copies of the companies’ certified annual financial statements and tax returns for a specific number of years, and
- Other relevant documentary evidence proving the companies’ market reputation and financial solvency.
Applying for a construction loan to pay for their equipment acquisition allows companies to get their finances in order. Organizations can maintain a steady cash flow to ensure continuity for their construction operations with this lending scheme. However, they need to know how to choose the right financier. The commercial bank or financial institution the companies shortlist should be reliable. Moreover, these lenders’ terms and conditions for offering this scheme should be lenient and acceptable to them. Above all, the lenders should be willing to provide the companies’ money at competitive interest rates.