For small and large logging companies alike, the right piece of machinery can make or break a business. Downtime means lost money, and having the latest equipment — or, at least, high-quality used equipment — can help keep your business in the black.
Many business owners don’t have the tens of thousands you need to outright purchase equipment. Instead, they rely on different types of financing to get the equipment they need.
Logging Equipment Financing for 2020
When it comes to financing heavy machinery, you may have a variety of business financing options. These could include bank loans, SBA loans, online lenders, credit unions, dealer financing, and non-bank lenders. All of these types of small business loans can help you finance your equipment needs.
When you’re looking for financing, finding the right lender can be important. Consider the type of equipment you plan on purchasing and the impact the loan will have on your business and cash flow. Here are a few specifics you may want to think about:
- New or used: Some lenders may be more willing to work with you to finance the purchase of used logging equipment, while others primarily finance new equipment.
- Buy or lease: You may want to take out a loan to purchase a new piece of logging equipment, or you may find it makes more sense to lease (i.e., rent) the equipment. Financing options are available for both types of transactions.
- Collateral: You’ll also want to consider the collateral requirement for the loan. You may find options that allow you to use the equipment you’re purchasing as collateral, but some lenders will ask for a personal guarantee or place a lien on your entire business. Unsecured loans may also be available, but it will be more difficult to get approved and qualify for a low rate.
- Specialized financing: You may be able to use a general business or equipment loan to buy logging equipment. However, a creditor that understands the industry and can work with you to offer specialized financing, such as repayment terms that take the seasonality of your business into account, may be a better option.
As with any type of loan, creditors have different qualification requirements and offer various loan amounts and repayment terms.
Options for Logging Equipment Financing
Nav partners with leading lenders that offer various types of financing, including equipment loans.
An online lender that offers same-day funding for up to $250,000 without collateral. To qualify, you’ll need to have been in business for at least a year, have $100,000 in annual revenue, and a “decent” FICO score.
If you find a great price on a piece of new or used equipment, including certified used machines, ask the dealer if it offers financing or has preferred financing partners. It may be able to recommend a creditor based on the equipment you want to purchase and your creditworthiness.
Envision Capital Group
Envision Capital Group has industry experience with logging operations and can work with startups and established businesses. Startups with good credit (a score of at least 660) may be able to qualify for around $50,000 in financing, and established business may be able to qualify even if they have poor credit.
Your business may be eligible for special financing arrangements from local or state governments. For example, the Maine Forestry Direct Link Loan Program offers up to a 2% interest rate subsidy on equipment loans of $400,000 or less to eligible loggers. Also, look into the USDA Business and Industry Guaranteed Loan Program.
LendSpark offers equipment financing to brand-new startups and established businesses, and you can use the money to purchase new or used logging equipment. The loan terms range from three months to five years, and equipment financing loans generally start at $20,000.
Nations Equipment Finance
For established logging companies, Nations Equipment Financing offers a variety of lease and loan options, along with other types of financing. The company generally offers long-term financing for $1M to $50M.
Newtek offers loan amounts of $1,000 to $15 million with repayment terms of seven to 25 years — which is likely more than you need to borrow and longer than you’ll need to repay the loan. Newtek only offers 100% financing if you’ve been in business for several years. Otherwise, you may need to make a 10% down payment on your equipment.
Viking Equipment Finance
Another option for larger, established businesses. Viking Equipment Finance generally offers loans in the $1M to $55M range. You may be able to use the logging equipment as collateral after getting a third-party appraisal.
How to Qualify for Logging Equipment Financing
The qualification requirements are going to depend on the lender and type of financing you want to secure. But generally, you’ll need at least the following to get approved for equipment financing:
- A business entity or DBA if you’re a sole proprietor
- A business license if your state or local government requires one
- If you have a new or small business, you may need to sign a personal guarantee, have at least a 600 personal credit score, and your personal credit history could be a factor.
- Established businesses with good business credit history and credit scores, along with healthy finances, may be able to qualify without a personal guarantee or credit check.
Is it Possible to Qualify for Logging Equipment Financing with Bad Credit?
If you have trouble getting approved, look for creditors that have experience with logging equipment financing and will work with you to make the financing work.
For example, some creditors may allow you to add other types of equipment as collateral to qualify for a loan. Or, they may be able to recommend vendors that offer high-quality used equipment that will be less expensive.
You may even be able to qualify for logging equipment financing if you declared bankruptcy in the last few years and have poor personal credit. However, you’ll need to show that your finances have recovered and you’ve been making on-time loan payments since the bankruptcy.
How Many Years Can You Finance Logging Equipment?
The loan’s repayment terms will depend on the lender and loan offers you receive, and general equipment loan terms can range from a few months to 10 years or longer.
One important point to keep in mind is that equipment loans generally aren’t amortized loans. With amortized loans, as you work through the repayment process, more and more of each payment goes toward the loan’s principal balance. Paying off the loan early can help you avoid some of the interest that would otherwise accrue if the lender doesn’t charge prepayment penalties.
With a non-amortizing logging equipment loan, you’ll agree to pay a specific amount over the course of the loan’s terms. This is why you won’t necessarily see interest rates or annual percentage rates on the loans — that’s not how the financing works.
Because interest doesn’t accrue, you may not be able to save money if you repay the loan early. Some lenders will offer a discount if you pay off the loan early, but check your contract to verify that you have the offer in writing.
Alternative Financing Options for Logging Equipment
If you don’t qualify for an equipment loan, you may still be able to purchase the logging equipment you need with an alternative form of financing. Here are a few popular options:
Manufacturers and some lenders can help you work out a lease agreement rather than a loan and purchase. There are different types of leases to consider, and some may better align with your business’s goals.
A capital lease, sometimes called a finance lease, is similar to a loan in that you get to keep the equipment at the end of the lease period. However, you may have to pay higher lease payments compared to a true lease.
A true lease, or operating lease, is more like a rental and the type of lease you’d receive on a personal vehicle. In exchange for making the lease payments, you get to use the equipment during the lease’s term. You may be able to purchase the equipment at the end, renew the lease, or end the relationship.
Line of Credit
Rather than take out an installment loan, you could apply for a line of credit from a bank or lender. With a credit line, you have the option to borrow up to your credit limit, and you’ll only pay interest if and when you decide to borrow money. Similar to a credit card, you can borrow against the credit line multiple times without reapplying.
Business lines of credit often have variable rates, and your payment amount could increase after you take out a draw (another name for a loan from a line of credit). Generally, they’re used to finance multi-step projects or help ease cash-flow crunches rather than purchase large pieces of equipment.
Businesses that have valuable assets may be able to offer the asset as collateral to qualify for asset-based lending. The assets could range from inventory to accounts receivable or equipment that you already own.
Nav’s Final Word: Logging Equipment Financing
In some ways, logging equipment financing is no different than financing heavy equipment in other industries. You’ll need to find a creditor that offers loans to businesses of your size and experience, and qualify for the loan based on your creditworthiness and finances.
At times, a general business lender may be able to offer you the best rates and terms. And with the advancement of online lending, it’s often quick and easy to submit an application and see what you can qualify for. However, you may also want to look into financing from companies that have industry experience, understand the importance of different types of equipment, and can work with you to structure a deal that takes the intricacies and seasonality of your business into account.