Financing Heavy Equipment: Lease vs. Loan for Contractors

In the “dirt world,” we have a saying: If the yellow iron isn’t moving, you aren’t making money.

But getting that iron on site is expensive. A new Cat D6 dozer doesn’t just cost a few grand; it costs as much as a nice house in the suburbs. Even a used skid steer can set you back $40,000 before you’ve even filled the tank.

For most contractors, paying cash for this machinery is suicide. It drains your working capital – the oxygen you need for payroll, fuel, and materials – and locks it into a piece of metal that starts depreciating the second it hits the dirt.

That’s why heavy equipment financing is the engine of the construction industry. It’s not about being broke; it’s about being smart. It’s about matching your expenses to your revenue. You use the excavator to dig the hole that pays for the excavator.

At Eboost Partners, we specialize in construction business loans that keep your projects moving. Whether you need $5K for an attachment or $2M for a fleet upgrade, let’s break down how to get the gear you need without choking your cash flow.

What Is Heavy Equipment Financing?

Let’s strip away the banker jargon. Heavy equipment financing is a type of asset-based lending where the machinery itself serves as collateral.

When you finance a pickup truck, the bank holds the title. If you stop paying, they take the truck. Heavy equipment works the same way. The lender files a UCC-1 financing statement (a public lien) against the equipment. Because the loan is secured by a tangible asset that can be repossessed and resold, lenders are willing to take more risks.

This means:

1. Lower Interest Rates than unsecured lines of credit.
2. Higher Approval Odds for contractors with “bruised” credit.
3. Larger Loan Amounts because the value is in the metal, not just your FICO score.

Types of Heavy Equipment Commonly Financed

If it has an engine and does work, we can usually finance it. It’s not just for the big road-building crews.

Construction Equipment

This is the core “Yellow Iron.” Since these assets have a long usable life, they are prime candidates for equipment financing.

• Earthmoving: Excavators, bulldozers, backhoes, and trenchers.
• Site Prep: Skid steers (the Swiss Army knife of construction), graders, and compact track loaders.
• Lifting: Telehandlers, boom lifts, and cranes (often used in bridge construction).

Specialized & Industrial Equipment

• Paving: Asphalt pavers, rollers, and milling machines.
• Aggregate: Crushers and screeners.
• Forestry: Feller bunchers and skidders.

Trucks & Support Equipment

Don’t forget the vehicles that get the material to the site. We frequently fund trucking business needs as well.

• Dump Trucks: Tri-axles, quads, and super dumps.
• Trailers: Lowboys and flatbeds to move the equipment.
• Concrete: Mixer trucks and pump trucks.

Buying Heavy Equipment With a Loan

When you take out an Equipment Loan, you are borrowing money to own the asset. You make a down payment (usually), the lender covers the rest, and you pay it off over time. Once the last check clears, you own that machine free and clear.

How Equipment Loans Work

• Down Payment: Typically 10% to 20%.
• Terms: Standard industry terms range from 3 to 7 years, though at Eboost, we focus on accelerated 12-24 month terms to help you build equity faster.
• Interest: Can be fixed or variable.

Pros of Equipment Loans

• Equity: You are building an asset. After the loan is paid, that machine can be sold or traded in. It sits on your balance sheet as a positive asset (Review our assets vs liabilities guide to understand how this helps your company value).
• Section 179 Tax Deduction: This is the big one. For 2025, the IRS allows you to deduct the entire purchase price (up to $2.5 million) from your gross income. If you buy a $100,000 dozer, you can deduct $100,000 from your taxable income this year, even if you financed it. It’s a massive incentive that can effectively subsidize your down payment.
• No Usage Limits: Want to run the machine 2,000 hours a year? Go ahead. It’s yours.

Cons of Equipment Loans

• Depreciation: You own the machine, which means you also “own” the wear and tear. If the market for used excavators crashes, you take the hit.
• Maintenance: You are 100% responsible for every blown hydraulic hose and oil change.

Leasing Heavy Equipment

Equipment Leasing is essentially renting with a long-term contract. The lender (lessor) buys the machine and lets you use it for a monthly fee.

How Leasing Works

At the end of the lease, you usually have three options based on the Residual Value (what the machine is worth at the end):

1. Return it: Hand over the keys and walk away.
2. Purchase it: Buy the machine for its Fair Market Value (FMV) or a pre-set amount (like a 10% PUT).
3. Renew: Extend the lease for another year.

Pros of Leasing

• Lower Monthly Payments: You are only paying for the depreciation of the machine during the term, not the full cost. This improves cash flow.
• Newer Tech: You can cycle your fleet every 3 years. This means fewer breakdowns and access to new tech (like GPS grade control) that makes your crew faster.
• Balance Sheet Management: Some leases can be treated as operating expenses rather than debt, which might help your ratios when applying for bonding.

Cons of Leasing

• No Equity: You pay for years and own nothing at the end.
• Usage Limits: Leases often have hour caps (e.g., 1,500 hours/year). If you go over, you pay penalties.
• Condition Clauses: You have to return the machine in good condition. If your guys beat it up, you’ll pay for repairs.

Lease vs. Loan: Side-by-Side Comparison

Which Option Is Better for Contractors?

There is no “right” answer, only the right answer for your business model.

Leasing Is Better If You:

• Change Jobs Often: If you usually do utility work but landed one big highway job, lease the pavers. You might not need them in two years.
• Need Cash Flow: If working capital is tight, the lower payments of a lease keep more cash in the bank for payroll.
• Hate Maintenance: Newer machines under lease are usually under warranty.

Loans Are Better If You:

• Use It Every Day: A skid steer or work truck that goes to every single job site should be owned. You will use it until the wheels fall off.
• Are Rough on Gear: If you work in demolition or rock quarries, you will destroy the machine. Leasing companies will charge you a fortune in damages. Buy it so the dents are your dents.
• Need Tax Write-Offs: If you had a killer profit year and need to lower your tax bill, buying and using Section 179 is a powerful strategy.

Heavy Equipment Financing With Fair or Bad Credit

“Jordan, I had a rough year in 2023. My credit is in the 600s. Can I still get a dozer?”

Yes.

Because “Yellow Iron” is tangible, easily resellable collateral, lenders are much more forgiving than they are with unsecured loans.

At Eboost Partners, we look beyond the FICO score. We look at the contract.

• Do you have signed bids for work?
• Do you have a history of completing jobs?
• Is your monthly revenue consistent?

If you have the work lined up, we can usually find a way to get you the gear. We specialize in business loans for bad credit that focus on your cash flow. You might pay a slightly higher rate or need a larger down payment, but you get the machine that allows you to bill the job.

Costs, Rates & Terms to Expect

Rates in 2025 have stabilized but are higher than the “free money” days of 2020.

• Good Credit (700+): Rates in the 7% to 9% range.
• Fair Credit (600-699): Rates in the 10% to 18% range.
• Bad Credit (<600): Rates can go higher, but remember – the cost of the interest is often lower than the cost of renting a machine by the day.

Soft Costs: Don’t forget that financing can often cover “soft costs” like delivery fees, taxes, and initial attachments. This keeps your out-of-pocket cash to a minimum.

Repayment: At Eboost, we offer terms up to 24 months with daily or weekly payments. This structure works incredibly well for subcontractors who get paid on draws. It smooths out the cash flow so you aren’t hit with a massive bill once a month.

How Lenders Evaluate Contractors

When you apply, we are looking for three “C’s”:

1. Cash Flow: Can you afford the payment? We want to see 3 months of bank statements showing steady deposits.
2. Character: Have you been in business for at least 6 months? (Startups are harder, but possible with a larger down payment).
3. Collateral: Is the machine worth the price? We won’t finance a 20-year-old rusted excavator for top dollar.

Common Mistakes Contractors Make

Financing the Wrong Machine

Don’t buy a machine for a job that lasts 3 months. Rent or lease it. Only buy machines that have a role in 80% of your projects.

Ignoring “Tier 4” Emissions

Be careful buying older used equipment. Many government jobs now require Tier 4 Final emission standards. If you finance an old smoky diesel, you might be locked out of lucrative municipal contracts.

Draining Cash for a Down Payment

Don’t spend your last $20,000 on a down payment. If it rains for two weeks and you can’t work, how will you pay your crew? Use financing structures that minimize upfront costs. Read our guide on how to improve working capital to avoid this trap.

How to Get Approved Faster

Time is money. If you need a machine by Monday, help us help you.

• Find the Machine First: Have an invoice or a quote from the dealer (or private seller) ready.
• Get Your Papers: Have your last 3 months of business bank statements in PDF format.
• Be Honest: If you have a past bankruptcy or a tax lien, tell us upfront. We can often work around it, but surprises kill deals.

If you are ready to move dirt, you can jump straight to our application page.

Your fleet is your resume. It shows the world what you are capable of building. Don’t let old, unreliable iron slow down your crew or cost you a bid.

Whether you need to replace a skid steer or finance an entire fleet expansion, capital is the tool that makes it happen.

At Eboost Partners, we help contractors build the future. Let’s get you the gear you need.