A construction business simply doesn’t run without equipment. At the same time, heavy equipment is cost-prohibitive. Unless you’ve got piles of cash waiting around for your business needs, securing financing is key to keeping your business up-to-date with the latest equipment and technology. Here are two styles of construction financing to consider along with their benefits and drawbacks.

Small Business Loan

If you are looking at equipment that will be with your business for years, a small business loan is the construction financing option for you. You’ll own your equipment free and clear and it will continue to make money for your business. You can look at a general small business loan or an equipment-specific loan. Each will have different repayment terms and interest.

For example, the SBA 7(a) loan and 504 loans are general loans and property/equipment loans. Both loans cap at $5 million. The 7(a) has a repayment term of 10 years for equipment, while the 504 can be set to either 10 or 20 years. A 7(a) can be a fixed rate or variable rate loan that you negotiate. For a 504, the interest rate is 1% above the Treasury market rate, giving you an extremely low APR.

You’ll need to have the cash to make a downpayment before the loan covers the rest of the cost and your business needs to be steady enough for regular monthly payments. Look for equipment loans from the SBA for the best rates and repayment terms. It’s important to make sure your loan term is shorter than the lifespan of your equipment. Electronics like computers will never maintain their worth for more than a couple of years so leasing is a better option. 

Equipment Leasing

Owning equipment gives you some additional tax write-offs and equity, but there are times that equipment leasing is the right option. If you have equipment that has to be replaced every couple of years or is high maintenance, a lease is the answer. You don’t have to pay money out of pocket upfront, but you will continue to pay a monthly fee as long as you have the equipment. 

With the rise of Leasing as a Service, more companies are offering the total package with leasing. You’ll be free of maintenance and repair costs and you’ll never have to figure out how to remove large equipment on your own. The leasing company will set it up, maintain it, repair it, replace it and dispose of it. 

Remember that you don’t have to use just one. Find the appropriate solution based on the equipment you need and your business finances.