Heavy Construction Equipment Financing – Leasing from $10 Million

 September 14, 2020

When a real estate project enters its construction phase, the arrival of the heavy equipment isn’t far behind. We’re talking bulldozers, dump trucks, forklifts, tractors, cranes, and all manner of big, bruising equipment. Heavy equipment can move earth and perform heavy-duty functions such as construction and roadbuilding. Some construction companies own their equipment outright, but most use some form of heavy equipment financing instead. In this article, we’ll dig into heavy equipment financing ($10 million and up) and answer your questions about it.

What is Construction Heavy Equipment Financing?

Video:  What’s Equipment Leasing?

Construction heavy equipment financing comprises the lending and leasing practices employed by the producers and consumers of heavy construction equipment. It applies to titled and non-titled equipment with serial numbers, secured via construction equipment leasing, construction equipment loans, and equipment finance agreements. The market for financing includes established developers, construction companies, rental companies, startups, private parties, and those with troubled credit. Generally, you’ll finance heavy equipment so that you don’t have to purchase it outright. In other words, it’s a way to preserve your capital and your flexibility. The financed equipment collateralizes the financing arrangement.

How Assets America® Can Help

Assets America® can provide you with heavy equipment financing starting at $10 million, with virtually no limit. We can get you a loan or lease much more rapidly that traditional sources can and with substantially less red tape. Contact us today at 206-622-3000 for more detailed information, or simply fill out the below form for a prompt response!

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Fundamentals of Heavy Equipment Financing

At the outset, it’s important to distinguish equipment financing from heavy equipment financing. While the former may deal with filing cabinets and desks, the latter is big, heavy, and expensive equipment that requires skilled operation. Construction equipment loans and construction equipment leasing allow you to possess and use heavy equipment without upfront payment, other than possibly the very last payment.

Having the right equipment onsite, at the right time and right price, can make or break a construction project. On a well-managed project, having the proper equipment saves money and reduces staffing requirements. Naturally, the goal is to provide your customers with a satisfying result, both structurally and financially.

Construction Equipment Leasing vs Construction Equipment Loans

Your fundamental decision is whether to use a lease or a loan for construction equipment financing. Both have their advantages and disadvantages, but they share the ability to stretch out your payments. Leasing allows you to rent equipment, pay a set monthly amount, and keep or return the equipment at lease end. A loan makes you the owner of the equipment, which appears as an asset on your balance sheet. The loan appears as a long-term liability, and you are the outright owner after making the last payment.

Leasing might make more sense when the equipment quickly becomes outdated or you know you’ll need to upgrade it soon. However, loans succeed when you’ll use the equipment for thousands of work-hours and don’t need to upgrade soon. Some people think that leasing is the cheaper alternative, but that isn’t always the case. You should price both types of construction equipment financing to see which one is the best, most appropriate option in the long run.

How Do Construction Equipment Loans Work?

You can usually get good construction equipment financing terms on a heavy equipment loan because the equipment serves as collateral. If you default on the loan, the lender can seize the equipment and sell it at auction. The lender will return to you any surplus amount.

Like any loan, the one to purchase heavy equipment consists of a cash amount, an interest rate, a payment schedule, and possibly some fees. Prepayment penalties on construction equipment financing loans might exist. You may be able to borrow up to 100% of the equipment price, but you’ll need good credit. If you have average or bad credit, low revenue, or scant cash reserves, the lender may require a down payment. Old or easily obsoleted equipment may likewise require a down payment. Circumstances will dictate the size of the down payment, if any.

The term of the loan will extend over a period of months or years. Usually, the loan term will not exceed the equipment’s useful lifetime. As a collateralized loan, the interest rate should be reasonable, i.e., in the 4% to 25% range. Don’t fall for super-low sucker advertised rates, as the lender will reserve those for only the very best, premier borrowers. Your time in business, revenues, credit score, equipment condition, and down payment all influence your interest rate. The most expensive, high-end equipment may have a slightly lower interest rate.

Another consequence of the collateralized nature of the loan is the lack of need for extensive underwriting. Therefore, expect loan funding in as little as two to three weeks, assuming you have a written quote from the equipment vendor. You also should establish how long it’ll take for the vendor to provide the equipment once you receive the loan.

SBA CDC/504 Loan

Highly qualified small businesses can get an SBA CDC/504 loan to purchase heavy construction equipment. This is the best SBA program for buying heavy equipment and commercial real estate. A bank can provide half of the loan, backed by an SBA guarantee. The remainder comes from a Certified Development Company (CDC), plus your down payment of about 10%.

To qualify for this loan, you’ll need the following:

  • An employee count that doesn’t exceed the limit that the SBA sets for small businesses.
  • Have a net worth less than $15 million and an average net after-tax income below $5 million for two years prior to application.
  • Retain or create jobs or promote other public policy goals.
  • Run an active, for-profit company

The maximum loan amount for this program is $20 million. Interest will be between 10% and 20%, and the repayment period will range from 10-years to 25-years.


When you purchase a long-term asset like heavy equipment, you depreciate it over a set number of years. Depreciation allows you to deduct the cost of the asset over its recovery period. The IRS sets the recovery period by the type of equipment. For example, a tractor is 3-year property, whereas all other heavy construction equipment is 5-year property. You recoup your capital expenditure over the recovery period using either straight-line or accelerated depreciation. You also can deduct the interest you pay on the equipment loan.

The total lifecycle cost of the asset includes any incentives or options, insurance, maintenance, interest, and operating expenses. You deduct expenses in the year incurred rather than depreciate them over the recovery period. You can also use Section 179 to immediately expense up to $1.04 million in capital expenditures in 2020. However, the cap on equipment purchases is $2.59 million for the year. You lose your access to Section 179 if you exceed the cap. However, in 2020, you get 100% bonus depreciation on equipment purchases. That allows you to fully depreciate in 2020 the equipment purchases you made in 2020 (i.e., one-year recovery period).

How Do Construction Equipment Leases Work?

Leasing allows you to rent equipment for a set period of time. You make monthly lease payments that you treat as expenses rather than capital expenditures. You can make special arrangements for the equipment disposition at lease-end. Typical lease terms range from 24 up to a maximum of 72 months.

Operational vs Capital Leases

An operational lease is like a rental and you carry the asset off the balance sheet. The rental period is less than one year, and payments flow through the income statement. You don’t own or depreciate the leased asset.

With a capital lease (or finance lease), the net present value of the lease obligation is a liability on the balance sheet. Furthermore, the current market value of the equipment is an asset on the balance sheet. The asset depreciates through the income statement and ownership rights transfer to the lessee. To qualify as a capital lease under U.S. GAAP, at least one of these conditions must obtain:

  1. Ownership transfers at lease end, or
  2. You can buy the equipment at a discounted price at lease end, or
  3. The lease term represents at least 75% of the equipment’s useful life, or
  4. The present value of the lease payments is at least 90% of its fair market value.

Additionally, a lease can be a capital lease under IFRS if only the lessee can use the equipment without extensive modification. Generally, capital leases have faster expense recognition than do operating leases. However, operating leases require easier bookkeeping.

Leasing Advantages

The advantages of leasing include:

  • Little to no down payment required.
  • Immediate expensing, no depreciation.
  • Option to purchase at lease-end.
  • Competitive fixed pricing.
  • Tax-free loan payments if vendor not required to collect tax.
  • Municipalities can get tax-exempt leases.
  • Can customize leases in many ways.
  • Outsource asset management.
  • Bundles equipment, installation, and maintenance in one easy solution.
  • Hedge against inflation.

You can arrange a lease as a sale-leaseback transaction. This is where you sell equipment to a lessor that leases it back to you within 90 days. This is a way to recoup the cash you spent on the purchase of new equipment.

Equipment Disposition

What do you do with leased heavy equipment when the lease expires? It depends on the options in the contract language:

  • Terminal Rental Adjustment Clause (TRAC): You have the option to purchase the equipment at the end of the lease term for a set price. That price is the residual value and is set up front, as in car leases. If you select a high residual value, your monthly payments will be lower. The reverse is true for low residual value leases.
  • Fair Market Value (FMV): This is a “true lease” with the option of renewing the lease, returning the equipment, or purchasing it for FMV.
  • Bargain Purchase: Allows you to buy the equipment at lease-end at a discount from FMV.
  • Buck Out: You can purchase the equipment for exactly $1.00 at the end of lease. Perfect for lessees who know they will keep the equipment after the lease terminates. However, the lease payments will be assuredly be larger.

Heavy Equipment Financing Requirements

Equipment loan requirements are stricter than those for equipment leasing. They include:

  • Credit Score: Ideally, you should have a minimum credit score of 680, though 720 is certainly preferred.
  • Tenure: Lenders prefer borrowers that have been in business for at least one year.
  • Cash Flow: Your business revenues should be high relative to the cost of the equipment.
  • Down Payment: You can overcome a multitude of weaknesses by offering a healthy down payment. For example, suppose you want to purchase a $10 million earth mover. A down payment between $1 million and $2.5 million will work wonders.

Certain circumstances are red flags that may be impossible to overcome. These include an open bankruptcy or a bill collector trying to get you to pay child support. A history of financial felonies with prison time definitely counts as a strike against you. Short of these red flags, a lender will offer you an interest rate based upon all the factors under consideration. That is, you might receive approval for a loan but will have to cough up high interest payments.

If you do succeed in obtaining a financing term sheet, be prepared to provide the following on or before closing:

  • A voided business check
  • A driver’s license
  • Financial statements and tax returns (personal and business)
  • Recent bank statements
  • Equipment quote or vendor invoice

Naturally, different funding sources have different paperwork requirements. A bank will require a ton’s worth paper, whereas an online lender may require substantially less. In return, a bank is likely to offer a lower interest rate if they condescend to accept your application.


These burly vehicles capture and transport rocks, soil, and other earthen materials:

  • Excavator: This is a crucial piece or equipment for digging into the earth’s crust. It has an enclosed cab sitting atop a tracked or wheeled undercarriage. There are many types, including utility excavators, reduced tail swing units, compact units, and many more. You can get them in a variety of sizes, from mini-units to hydraulic monsters with colossal buckets. You can use these babies for dredging rivers, excavating foundations, digging holes and trenches, or demolishing existing structures.
  • Backhoe Loader: A tractor on steroids, with a front loader and a backhoe (an arm with a claw-like bucket). They can break up asphalt, dig pits, plow snow or dirt, and move trees. One manufacturer makes models with horsepowers ranging from 74HP to 109HP.
  • Bulldozer: Diesel-powered tractors on a tank track with a large hydraulic front-blade. It’s goal in life is to push around huge mounds of dirt, brush, and debris. It can even pull tractors that need rescue.
  • Wheel TractorScrapers: A tractor with a rear hopper and a sharp front edge built to haul materials short distances. This group includes towed, elevating, and open bowl varieties sporting one or two engines.
  • Trenchers: Just the ticket for digging trenches. They pierce the ground to clear out rocks, soil, roots, etc. Perfect for utility companies looking to lay pipes or wire. They come in walk-behind and riding models in chainsaw or wheel designs for cutting through rock, soil, or whatever.
  • Skid-Steer Loaders: Compact yet powerful, with a cab above four wheels and a variety of lift arms for moving different loads. Also available with tracks for difficult terrains. The Bobcat was the first unit of this type. Today, they can come with dozer blades, bale forks, tillers, and utility forks. It can carry pallets, scoop/haul dirt, plow snow, and help with landscaping chores.
  • Dump Trucks: Ubiquitous vehicles that are known for collecting trash or moving soil. The truck bed can tilt to disgorge its cargo. The biggest units can move earth on-road or off-road, at open-pit mines or industrial/construction sites.
  • Motor Graders: These look like giant anteaters but are considerably more useful. The long front blade smooths surfaces and hands between the two front tires. They come in one-axle rigid frame designs and articulated two-axle units with a center hinge for maneuverability.
  • Wheel Loaders: Scoops materials in its large bucket and transport them to wherever needed. One manufacturer makes 14 models ranging from two-ton to monster, 47-ton units. You see them at building sites, forests, farms, and wherever the work demands.

Infrastructure & Roadworks

All the equipment types listed under earthmoving also qualify for building infrastructure and roads. In addition, you’ll find:

  • Road Rollers: Compacts gravel, soil, and asphalt in preparation for creating even, flat roads. They have four wheels, a pad foot drum, and a blade. They also press newly poured asphalt in place and bind road layers to each other.
  • Asphalt Mixers: Various sized machines to manufacture road stone such as cement and asphalt that compose the road’s top layer.
  • Cranes: These machines do the heavy lifting and lowering of materials and move them horizontally on the job site.
  • Work Trucks: Used in 1,001 ways for virtually endless tasks.

Equipment Leasing & Loans FAQs

How do I know if I need construction equipment leasing or loans?

You must evaluate the pros and cons of both alternatives as they apply to your business. A lot depends whether you want to own the equipment, either right away or after the lease ends. Your decision will affect your cash flows and tax payments.

What happens if my heavy construction equipment becomes obsolete?

If you leased it, you would simply return it to the lessor and dump the problem back on the lessor’s lap. Leasing is a great way to avoid being stuck with obsolete equipment. If you own the equipment, perhaps you can donate it and take a tax deduction.

What kinds of construction equipment does AAI provide funding for?

We at Assets America® can happily provide you with funding for the purchase or lease of heavy equipment starting at $10 million. There is virtually no limit on the amount of equipment we are willing to finance, but of course, you and your business must qualify for such financing.

How long can you finance heavy equipment?

The typical heavy equipment lease has a term of two to six years. A lease can renew if you need the equipment longer. Equipment loans can be of any length, within reason of course.

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