A drilling loan is a loan for the heavy machinery used for oil exploration and in oil refineries. Taking out a drilling loan allows a business to write down its costs associated with this equipment and have use of a drill necessary to engage in their business affairs.
What a Drilling Loan Is For
A drilling loan is written exclusively for the purchase of drilling equipment. The terms and conditions of the loan are designed to meet the depreciation schedule of the business that is purchasing the drilling equipment with the proceeds from the drilling loan. A general depreciation schedule for a drilling loan is 25 to 30 years. This period is the useable life of the drilling equipment before it is deemed worthless or without value. When the equipment reaches the end of its useable life, the loan is paid off and the business has written off the loan interest cost as an expense on its corporate tax return.
Drilling Loan Interest Rate
A drilling loan has an interest rate that is based on the borrower’s credit risk to the lender. The types of lenders that provide drilling loans include banks and private lenders that specialize in these types of loan. A drilling loan can have a low interest cost for a borrower with a high credit score or a high interest cost for those borrowers with a low credit rating.
Check Credit Rating before Applying for a Drilling Loan
A business that is in need of a drilling loan should check to determine their credit rating and the qualifications of the lender before making a loan application. If necessary, a borrower may have to secure collateral for the loan to prevent loan default or obtain a cosigner for the drilling loan.
Some important items to know to finance your are:
- How much money do you really need?
- Do you know your exact FICO scores?
- How do you plan to repay the loan?
- Who is going to borrow the money? You personally or another legal entity?
- What assets can you pledge to secure your loan?
Make sure you know you are pre-qualified before you apply. Our free business capital search engine will allow you to see the funding programs and lenders that are available to you and then you choose those you wish to apply for.