Construction equipment financing in Canada

Construction equipment is expensive, it earns for years, and it is exactly the kind of purchase that should not come out of working capital in one month. Financing it against itself spreads the cost over the life of the machine, so the payment sits against the work the machine lets you take on.

What can be financed

Nearly anything with a serial number and a resale market:

• Excavators, mini-excavators, backhoes and skid steers
• Loaders, dozers and graders
• Boom lifts, scissor lifts and telehandlers
• Dump trucks, service trucks and trailers
• Compactors, concrete equipment, generators and compressors
• Attachments, where they are on the same invoice as the machine

How it works

Equipment financing is secured by the equipment itself. The lender pays the dealer or seller, registers its interest in the machine, and you repay on a fixed schedule — usually between one and six years, matched to how long the machine will be earning.

Because the machine is the security, equipment financing usually prices lower than an unsecured loan of the same size, and often needs nothing else pledged.

Loan or lease

An equipment loan means you own the machine from the start, with the lender's interest registered against it until the loan is paid.

A lease means the lender owns it and you pay to use it. At the end you may buy it for a set amount, return it, or upgrade. Some leases are really loans in structure; others are true rentals.

Which is better depends on how long you will keep the machine and how your accountant wants it on the books. The agreement states plainly which one you are signing. If it is not obvious, ask before you sign.

New or used

Used equipment is generally financeable. Age and hours move the term more than they move the answer: a five-year-old excavator with high hours may get a shorter term than a new one, not a refusal.

A private sale needs better paperwork than a dealer one — a bill of sale, the serial number, and proof that nobody else has a claim registered against the machine. A lender will search for existing liens; it is worth checking yourself before you agree a price.

What speeds up approval

• The quote or invoice, with the serial number or VIN. It is the one document equipment financing cannot start without.
• Six months of bank statements for the operating account — why six.
• Proof of insurance on the machine, usually needed before funds move.
• A line on the work it is for — a contract won, a sub-trade you are bringing in-house, a rental bill you are replacing.

Timing it around the season

Construction revenue is seasonal in most of Canada, and lenders know it. Arranging financing against the quote, before the season starts, means the deposit does not come out of your account in the same month you are paying crews. Waiting until the machine is delivered — or buying it with cash and trying to finance it afterwards — is harder and usually costs more.

Financing for construction companies covers how construction files are read more generally: progress billing, holdbacks and the gap between paying crews and getting paid.

Equipment financing or a term loan?

If the money is buying one identifiable machine, equipment financing is almost always the cheaper of the two. A term loan is the better answer when the spend is spread across several things — a yard, a hire and three smaller tools — or across no thing at all.

Do not buy a machine on a line of credit if equipment financing is available. The machine can secure its own loan, and the line is more useful kept free for the months between progress payments.