Getting Construction Equipment Financed During A Recession
During a recession, many lenders tighten their purse strings. If you're worried that a recession might be coming, you may also be worried that you won't be able to finance equipment that you need. In the construction industry, not having the right equipment can mean not being able to bid on jobs—and if equipment goes down, it's often incredibly expensive to replace. Here's what you need to know about getting financing during a recession.
Lending Slows But It Doesn't Stop
Even during a recession, there are still lenders available. They just raise their standards and they lend smaller amounts. You will need to make sure that you're one of the best possible candidates for an equipment loan, but you will still have options.
Equipment Leasing is Still Available
If you can't get a loan for equipment, you may still be able to get a lease. In fact, during a recession, a lease is often better. A lease offers you more flexibility than a purchase does, with less of an immediate outlay of cash. During a recession, flexibility is important: you need to be able to scale your business up or down as needed. Talk to a leasing company like LeaseSource about your options.
Interest Rates Will Likely Be Higher
Interest rates generally go higher during recessions, both because banks are being pickier about their lending and because more people are defaulting on loans. You should plan in advance to spend more than you usually would on any loans that you get.
A Business Plan Is Always Necessary
Business loans require business plans. You should be able to show exactly why you need equipment as well as be able to measure the ROI of that equipment. How much money will having that equipment make you? How much money will you make moving forward and will that be enough to pay back the loan?
Your Business Credit Needs to be High
Business credit scores are going to have to be higher during a recession, or you may find yourself needing to personally guarantee your business loans. You can work on your business credit now by procuring credit and using it responsibly.
As long as your business is in good health, there's no reason to think you won't be able to get financing. However, it's good to think about your options before you actually need them. Maintaining a strong cash buffer and getting business lines of credit now is a good idea. If you start feeling as though the market may be in recession, you may also want to invest in repairing and replacing equipment before it truly hits.