Construction Asset Finance: How To Fund New Or Used Equipment

Buying construction equipment is a significant investment and you may not have the capital to pay for the machinery upfront. This is where construction asset finance can help.

Rather than making a single large payment, you spread the cost. The funding will typically be secured against the equipment, and payments are made in instalments. This allows you to use the machinery immediately while paying for it over time.

If that sounds suitable for your needs, keep reading for more details on construction asset finance. We’ll look at the different nuances, downsides and alternatives, too. 

Types of asset finance available

Asset finance is an umbrella term. Under that umbrella, there are different options available depending on your needs and financial situation. Each type of finance has its advantages, and choosing the right one depends on your company’s needs and plans.

• Hire purchase (HP): This option lets you spread the cost of equipment over a fixed term via regular payments. Once you’ve made all the payments, you take ownership of the machinery. Hire Purchase is great if you want to invest in long-term assets without paying the full cost upfront. Some agreements may require an initial deposit, and VAT may be payable at the start of the contract.
  
  
• Finance lease: You rent the equipment for a fixed period, making regular payments while it remains the lender’s property. At the end of the lease, you can usually extend the lease, upgrade to newer equipment, or return it. This is a good choice if you need equipment but don’t want the responsibility of ownership.
  
  
• Operating lease: This arrangement is much like a finance lease, except it’s more short-term. An operating lease is ideal for meeting short-term needs and less of a financial commitment.

Can I finance used construction equipment?

Yes, many lenders offer finance for used machinery. However, the equipment’s age, condition, and expected lifespan can influence approval and loan terms.

The best ways to finance used construction equipment

Since construction machinery tends to include expensive bits of kit, you may be looking to purchase second-hand machinery. While second-hand machinery is cheaper, the costs will still be substantial and require the need for finance.

The good news is there are financing options specifically designed for used construction equipment. Since used machinery has a lower upfront cost but can have varying resale values, lenders will assess things like age, condition, and expected lifespan before approving financing.

There are three common ways to secure finance for used equipment:

• Specialist lenders: Certain finance providers specialise in funding used equipment and understand how to assess its value.
  
  
• Dealer finance: Some construction equipment dealers offer their financing options or work in partnership with lenders.
  
  
• Auction finance: If purchasing at an auction, some lenders provide a type of bridging loan called auction finance to help you complete your auction purchase.

What’s the difference between asset finance and a business loan?

The difference between asset finance and a business loan is that asset finance is tied to buying a specific asset, while business loans generally come with less structure around how the money must be used.

• Asset finance: This is a specialised form of lending designed specifically for buying equipment, vehicles, or machinery. Instead of requiring other forms of security, the loan is (usually) secured against the asset itself. Asset finance typically comes with fixed repayments and helps you eventually take full ownership of the asset.
  
  
• Business loan: A lump sum of money that can be used for all kinds of purposes. This could be buying new stock, hiring people, expanding premises, or buying equipment. Unlike asset finance, a business loan is not specifically tailored for equipment purchases and often relies on your overall financial health and creditworthiness for approval. Business loans may be secured against company assets or offered on an unsecured basis.

Construction asset finance vs business loans: which is better?

The choice between construction asset finance and a business loan depends on your specific needs. If your goal is to acquire equipment while keeping cash flow stable, asset finance is a great option. However, for broader business expenses, a traditional business loan offers greater flexibility. There are three things you should think about:

• Purpose-specific financing: Asset finance is designed for equipment purchases, while business loans can be used for a variety of expenses.
• Collateral requirements: Asset finance secures the loan against the equipment, whereas a business loan may require other collateral.
• Cash flow management: With fixed payments, asset finance makes it easier to budget for new equipment without impacting working capital.

How to qualify for construction equipment asset finance

To improve your chances of securing construction equipment asset finance, lenders generally look at the following:

• Business trading history: Most lenders require you to have been operating for at least 12 months.
• Creditworthiness: A strong business credit score increases approval chances and can secure better rates.
• Financial statements: Lenders often ask for revenue details, cash flow forecasts, and tax returns.
• Deposit requirements: Some lenders may ask for an upfront deposit depending on the equipment’s value.

How do I improve my chances of getting approved for asset finance?

To improve your chances of getting approved for asset finance, focus on maintaining a good credit history, paying off your liabilities and outstanding debts and giving the lender clear, up-to-date financial records.

These three things will go a long way towards ensuring you’ll get the funding you need to buy new or used equipment. 

The key benefits of construction asset finance for your business

In construction, having access to the right equipment is essential for keeping projects on track and maintaining a competitive edge. But, buying machinery outright can put a significant strain on cash flow.

Here’s where construction finance is designed to help. It’s a flexible funding solution that lets you acquire the equipment you need without the burden of large upfront costs. Construction finance offers the following benefits:

• Preserve cash flow: Avoid large upfront costs and maintain financial flexibility.
• Tax advantages: Lease payments and interest may be tax-deductible, reducing overall expenses.
• Access to up-to-date equipment: Stay competitive with the latest machinery without a significant investment.
• Fixed repayments: Predictable costs make it easier to manage cash flow effectively.

What types of construction equipment can you finance?

With construction equipment asset finance, you can fund a wide range of machinery, including:

• Heavy machinery: Excavators, bulldozers, and loaders.
• Earthmoving equipment: Backhoes, graders, and trenchers.
• Material handling equipment: Cranes, forklifts, and conveyors.
• Concrete equipment: Mixers, pumps, and batching plants.
• Power tools and site essentials: Generators, compressors, and scaffolding.

Whether you need large-scale machinery or smaller tools, there are financing options available to help you acquire the necessary equipment.

How your credit history affects asset finance approval

As with any form of finance, your credit history plays a crucial role in securing the loan you need. Here’s how different credit scores will (likely) affect your application:

• Good credit: Higher approval chances and access to better interest rates.
• Poor credit: Lenders may require a higher deposit, charge higher interest, or ask for a guarantor.

If you’re unsure about your credit score, regularly reviewing your business credit score is a good idea. If you’re not desperate, it might be worth waiting until you’ve got a good score before applying for finance.

A step-by-step guide to applying for construction asset finance

If you're considering asset finance to support your construction business, it’s important to approach the process strategically. By following these steps, you can secure the financing you need and ensure a smooth experience from application to equipment acquisition.

1. Assess your financing needs: Determine the type of equipment required and its cost.
2. Research potential lenders: Look for lenders that specialise in construction equipment asset finance.
3. Prepare your documentation: Gather financial statements, business plans, and credit reports.
4. Submit your applications: Apply to selected lenders with all required details.
5. Review your options: Compare repayment terms, interest rates, and contract conditions.
6. Finalise your agreement: Once approved, sign the contract and acquire the equipment.

The flexible way to finance your construction assets

Construction asset finance offers you a practical way to acquire new or used construction equipment without straining your company’s cash flow. Whether that’s heavy machinery, material handling equipment, or power tools.

That said, before committing to asset finance, consider whether a more flexible funding option might better suit your business. iwoca’s Flexi-Loan, for example, offers short-term financing for a variety of business expenses (including equipment purchases) without being tied to a specific asset. 

By exploring all your options, you’ll make the best financial decision for your business’s needs and long-term growth.

Apply for a Flexi-Loan with our simple online form. With fast approval, minimal paperwork and no hidden fees. Apply for a Flexi-Loan today. 

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