If your business requires construction machinery, farm machinery, heavy-duty power tools, or just a commercial-grade coffee roaster, then we thank you for making Minnesota a pleasant place to live in. Without machines and people who know how to use them, we’d all still be living in the Stone Age.
You know how to make machines work to your advantage. Your skill plus their power equals revenue – the sweetest word in the small businessperson’s language. Unfortunately, operating a business that requires machinery goes hand in hand with a significant (and continually rising) cost: that of the machinery itself.
Maybe you are living out the Midwestern dream by establishing your own contracting company. Or maybe it’s already mid-summer, and you only just discovered that your farm’s current carbine doesn’t have another harvest in it. Either way, you don’t have to have cash on hand to invest in whichever machinery will sustain and grow your business. All you need is a machinery loan.
What Is a Machinery Loan?
“Machinery” encompasses virtually any motorized equipment a commercial, industrial or agricultural enterprise could need for operation. Bulldozers, cranes, concrete mixers, dump trucks, metalworking equipment, woodworking equipment, and many other large tools count as machinery.
A machinery loan is a type of equipment loan: financing which is used to purchase business equipment. In the simplest possible terms, you (A) borrow money to purchase machinery, and then (B) pay it back over time, with interest (usually at a fixed rate). Down payments typically range between 10 to 20 percent; higher down payments come with lower interest rates. Loan terms typically range between 3 and 10 years, although terms shorter than 1 year are also possible.
The Benefits of Machinery Loans
A machinery loan is secured by collateral: i.e. the piece of machinery it was used to purchase. In other words, if the borrower defaults on their loan, the lender can recover part of their losses by taking possession of the machinery. Because machinery loans carry relatively less risk for the lender, they are generally available with lower annual percentage rates.
Machinery loans are popular, which is why so many banks offer them. That works to borrowers’ advantage, as they can shop around for the terms which best suit their professional and financial needs.
Machinery loans are convenient, with a quick and straightforward application process that busy professionals don’t have to dedicate too much time to. Finally, they are generally more accessible to business owners who are just starting out, or who have a bad credit history.
How to Get a Machinery Loan
Want to apply for a machinery loan? Begin by contacting any bank, credit union or other financial institution that offers them. The lender’s representative will request relevant information about you and your business, including:
- Personal credit score
- Business credit score
- Profit and loss statement
- Number of years in business
- Type and value of machinery desired
Many lenders will not provide financing to newly established businesses (i.e. less than 1 year old). Likewise, many lenders decline applicants that don’t meet minimum credit score requirements. Don’t give up if you encounter issues for either of these reasons, as many lenders will overlook bad credit or a short time in business in consideration of a higher interest rate.
Note that interest isn’t the only cost of most machinery loans. Upfront fees, late fees, and prepayment penalties are all common, which gives you all the more reason to study a loan’s fine print before agreeing to it.
Are you interested in taking out a machinery loan in Central, Northeast or Northwest Minnesota? Then Community First Bank is here to help you purchase whatever it will take to help your business grow. We welcome you to contact us or stop by one of our locations in Menahga or Sebeka, MN today!