Companies often look to succeed using OPM: other people’s money. This requires the use of debt — usually in the form of loans — from lenders, quite often banks and similar financial institutions. A loan for heavy equipment can be a good use for OPM as these items are usually expensive and require heavy capital expenditures. To get a loan, a company must have a plan for describing the use of the loan, select equipment prior to talking with the bank, and present financial statements to indicate the viability of the company receiving the loan. Vendors may also be able to give a loan for heavy equipment.
All business loans from a bank must start with a purpose. Banks are in business to make money on lending and the interest charged on loans. Owners and executives looking to obtain a loan for heavy equipment must have a plan in place. The plan should describe the use of the loan, why a company needs external money, and what the bank can expect in terms of repayments. In many cases, it is best to obtain loans from a bank with an established relationship to the business. This can remove some of the questions a bank may have about the business and its long-term viability.
It is always best to have equipment selected prior to getting a loan. This allows the company to present the vendor with detailed descriptions of both the item in question and the vendor who will receive the payment. It may also be a good idea to have a secondary option when getting a loan for heavy equipment. For example, a company may desire a top-of-the-line piece of equipment. Once a bank reviews the paperwork, however, the decision may come down to a secondary vehicle that is cheaper but will still work for the business.
Businesses must often present financial statements or other documents to a bank when getting a loan for heavy equipment. The higher the purchase price, the more financial data needed to justify the loan for the equipment. In most cases, banks will require several consecutive months in terms of financial statements. This is why using a bank that the company has an established relationship with is beneficial. Loan officers may be more familiar with a company and require less paperwork for a loan for heavy equipment.
When a bank fails to provide a loan for heavy equipment, alternative options may exist. The vendor may give a loan for the equipment, or issuing bonds to investors may work. Either way, creative options may be necessary when the need for OPM arises.