The Cost of Financing and Leasing Equipment
Rates for leasing or financing equipment depends on a few factors: the price of the equipment, which financial institution you choose to finance your trucks or equipment with, the age of the truck or the equipment, your credit, and how long you have been in business.
If you qualify for bank financing, great! Use it for operating capital like I mentioned in my last article. Companies like us exist because banks turn down 85% of loan applications. Banks also tend to not do transactions under $100,000 and typically like to lend to larger companies. Not to mention a bank will also impose restrictive loan covenants on you. If you are buying new or almost new equipment from a dealer, you may qualify for 0% or a similar promotion; take advantage of it! If you are not buying equipment with bank financing or dealer incentives, then you go to an equipment leasing or financing company like us! The annual financing charges can range from 6% to as high as 47% or more depending on your business situation. Keep in mind, most equipment financing websites mention only the 6% rate; very few customers qualify for this.
Expect lower payments for new equipment or equipment less than seven years old. Most finance companies will not touch a deal with equipment more than seven years old.
Like any other financing transactions, your credit rating will pay a big part in how much you pay. The example below shows a quick and easy comparison of how your credit score affects your payment for a $50,000 tow truck for 60 months having been in in business for 5 years.
Credit Score Payment:
GREAT 750+ $990
GOOD 675–749 $1,063
OK 650–674 $1,165
FAIR 620–649 $1,680
POOR 600–619 $1,840
HORRIBLE Under 600 $2,175
*These are estimates since more goes into payment than just your credit score. However, it is a good approximation and it should give you a good starting point.
As you can see, there is an enormous difference based on your credit score.
If you have been in business for over 2 years, you will have better rates. 2 years is the magic number that is standard across the country. This is because if a business is going to fail, it is more likely to fail in the first 24 months.