For contractors, equipment is what keeps the revenue coming in. 

Excavators, skid steers, cranes, trucks, and specialty tools – all require significant upfront investment. However, buying them can put major strain on working capital, consequently halting business growth. 

That’s where equipment financing comes in.

Contractor equipment financing is different from general business loans, because it is structured around job cycles, equipment lifespan, and utilization rates. Still, many contractors struggle where to apply for financing and how to successfully secure it. 

In this article, we will lay it all out!

What is Contractor Equipment Financing?

Contractor equipment financing is a funding solution that helps contractors purchase, lease, or upgrade the machinery and vehicles they need at work. 

Instead of paying the full cost upfront, contractors spread the expense over time. This, together with structured repayment plans tailored to project cash flow makes it easier for companies to stay in and grow their business. 

Here, the equipment itself is collateral, which reduces lender risk, hence why these programs are more accessible than unsecured funding options.

What distinguishes contractor equipment financing from standard business loans is its asset-based nature. 

Traditional business loans have different criteria. They are primarily approved based on credit score, financial statements, and overall business strength, with funds that can be used for almost any purpose. Equipment financing, by contrast, is tied directly to a specific asset. Because lenders can repossess the equipment if payments stop, approval criteria are often more flexible, interest rates can be lower, and repayment terms are matched to the equipment’s useful life. 

This makes it particularly suitable for contractors who need heavy or specialized machinery but want to preserve working capital.

That said, contractor equipment financing does have limitations, and you should be aware of these constraints when applying. First, the funds are restricted to equipment purchases and cannot be redirected toward payroll, marketing, or other operating costs. Secondly, the financed equipment may depreciate faster than the loan balance, creating negative equity if the asset loses value quickly. 

On top of this, sometimes lenders also impose usage restrictions, insurance requirements, or limits on how and where the equipment can be deployed.

Best Options for Contractor Equipment Financing

Equipment financing is not one size fits all. Depending on the machines you need, and your projected cash flow, some options can help your business bloom, while others might be a financial disaster.

Going about it strategically is very important. Here are some options you can explore to apply for equipment funding:

Equipment Loans

Equipment loans are when your lender provides funds to purchase equipment, and the equipment itself serves as collateral. Repayment terms usually match the expected lifespan of the machinery.

This option works best for essential equipment used daily, such as excavators, loaders, or commercial vehicles. Once the loan is paid off, the contractor owns the asset outright, which can add long-term value to the business.

Equipment Leasing

Leasing is ideal for contractors who regularly upgrade equipment. Instead of purchasing a machine, you pay to use the equipment for a fixed period. 

And since leases typically require lower upfront costs than loans, you can preserve cash for other business needs. At the end of the lease, contractors may return the equipment, extend the lease, or purchase it, depending on the agreement.

Vendor or Manufacturer Financing

Many equipment dealers and manufacturers offer in-house financing. These programs are often designed to move inventory and can include promotional rates, deferred payments, or bundled maintenance packages. 

Vendor financing is faster than bank loans because money is arranged at the point of sale. However, rates and terms may be less competitive long term, so contractors should review the total cost carefully.

Equipment Lines of Credit

A business line of credit can be used for smaller equipment purchases or down payments. Unlike loans, lines of credit are revolving, and let contractors draw funds as needed and repay only what is used. This option works well for accessories, attachments, or short-term equipment needs but carries higher interest rates than dedicated equipment loans.

SBA Equipment Financing

SBA-backed loans, such as SBA 7(a) or 504 programs, can be used for large equipment purchases. These loans have longer repayment terms and lower interest rates. 

Therefore, they are best suited for established contractors planning major investments. 

The downside, however, is that there’s a longer approval process and more documentation compared to private lenders.

Alternative and Private Lenders

Private lenders specialize in equipment financing for contractors with limited credit history or inconsistent cash flow. 

While interest rates may be higher, the speed and relatively lenient approval criteria often outweigh the cost for contractors needing equipment quickly to secure or complete jobs.

Conclusion

Business needs machines to run. Contractor equipment financing allows you to acquire that essential machinery without draining designated working capital. 

However, it’s important that you go about it the right way. For example, loans work best for long-term assets, while leases and alternative financing have other benefits such as faster access to cash. 

Want to learn and discuss more on what’s the right choice for your business? Contact ROK Financial now!

Frequently Asked Questions 

1. Can I get contractor equipment financing with bad credit?

If you have a poor credit score, getting contractor equipment financing would be difficult, but not impossible. 

You will find many lenders who focus more on the value of the equipment and your current revenue than your credit score. In equipment financing, the machine itself often serves as collateral, which reduces lender risk. Hence why, lenders are flexible and can approve financing even with limited credit history or past financial challenges.

2. Should I buy equipment or lease it?

Buying vs leasing – what’s the right choice? The short answer is that buying is cheaper than leasing. The long answer however, depends on usage and longevity. 

Buying is better for equipment used daily over many years, as it builds long-term value. Leasing works well for short-term projects, seasonal work, or equipment that depreciates quickly. Successful contractors often use a mix of both to stay flexible and control costs.