How Business Equipment Financing Works

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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Do you need updated equipment to keep operations running smoothly in your business? Depending on the type of equipment used in your business, it can be costly to acquire what you need. And in some cases, cash flow issues could arise if you have limited reserves. 

Equipment financing may be a good option to help you acquire the equipment your company needs without emptying out cash reserves. Here’s an overview of how it works, what you need to qualify, the benefits and drawbacks of equipment financing, and how to find a reputable lender.

Get Started With Equipment Financing

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

What Is Business Equipment Financing?

Equipment financing is a form of business financing available to small business lenders. It would be helpful if you acquired the equipment you need without having to front the total purchase price. Instead, you’ll borrow the funds and repay the lender over time with interest. 

Key Facts About Equipment Financing

  • Buy New or Used Equipment: You’re not limited to a new piece of equipment with this form of funding. Some lenders also offer financing for used equipment purchases. 
  • Fund Up To 100% of Equipment Cost: Depending on the financing arrangement, you could be eligible to borrow up to 100 percent of the equipment’s purchase price. This means you won’t have to come out of pocket until it’s time to repay the loan. 
  • Equipment Act as Collateral for Loan: Equipment loans are secured, and the equipment acts as collateral. Consequently, the lender could seize the equipment if you fall behind on the loan payments. 
  • Terms Can Be From A Few Months To 10 years: You could get a repayment period of up to 10 years, which means you may not have to buy new equipment once it’s paid off if it has an extended useful life. 
  • Options Include a Loan or Lease: Some lenders also offer equipment leases instead of loans. This could be ideal if the equipment doesn’t have a long useful life, and you’d instead enter into a lease agreement to keep costs down as it’s generally more affordable than buying the equipment outright. 

How Can You Qualify for Business Equipment Financing?

Each lender has its own set of qualifications, but here are some general guidelines. 

  1. Credit Score: Perfect credit isn’t required for business equipment financing, but a minimum score between 550 and 600 is preferred. 
  2. Time in Business: Ideally, you want to be in business for at least a year before applying for business equipment financing. 
  3. Personal and Business Finances: Most lenders will review your business’s bank statements and financial statements within the past three months. They may also have minimum annual revenue thresholds and analyze your personal financial statements to determine if you’re a good fit for financing. 

Should You Finance Your Business Equipment?

It could be sensible to finance your business equipment if you have a dire need and can’t afford to cover the costs upfront. Business equipment financing could also be ideal if you’d prefer to lease the equipment you need due to its brief lifespan, and it’s far too costly to keep buying and replacing it every few years. 

Pros of Business Equipment Financing 

  • It can be a more affordable option if you get a secured equipment loan.
  • You’ll own the equipment at the end of the repayment period if you opt for a loan. 
  • There’s no additional collateral requirement as the lender uses the equipment to secure the loan.
  • You may save at tax time if you can depreciate the equipment over its useful life. 
  • You can avoid emptying your company’s cash reserves or creating cash flow issues by borrowing the funds instead of paying the entire purchase price upfront. 
  • Equipment financing helps establish business credit for your company.

Cons of Business Equipment Financing

  • The equipment could be outdated at the end of the loan term. 
  • You may have to make a down payment of up to 20 percent to secure equipment financing. 
  • If you default on the terms of the financing arrangement, the lender could seize the equipment to recoup its losses.
  • Most lenders require you to be in business for at least a year to qualify for equipment financing, which means there are limited options for new companies.
Get Started With Equipment Financing

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

Where Can You Get Business Equipment Financing? 

SBA Lenders

SBA (Small Business Administration)-approved lenders offer business equipment loans with low-interest rates and terms of up to 10 years. You’ll need a credit score of at least 690 to qualify in most cases, and you can use existing equipment or the equipment you’re purchasing as collateral to secure the SBA loan.  

Banks and Credit Unions  

If you have good or excellent credit, you could qualify for an equipment loan with competitive terms through a traditional lender, like a bank or credit union. However, be mindful that you’ll need more than one year of business experience and a consistent revenue stream. 

Online Lenders

You’ll generally find that business equipment financing is easier to qualify for through online lenders than banks, credit unions and SBA lenders. Even if you haven’t been in business long or have less than perfect credit, you could still get approved for funding and possibly receive the loan proceeds in as little as 24 hours. 

If you’re ready to secure capital for your business, Biz2Credit is a direct funding provider. All you have to do is create a profile and submit an application for funding. It only takes four minutes, and you’ll be matched with a funding specialist to help you evaluate your financing offers and select the best option that meets your company’s specific needs. Even better, you could get approved for working capital within 24 hours and receive funding within 72 hours. 

Inquire with Biz2Credit today to learn more about funding options that may be available to you. You can fill out a simple form to get started.

Biz2Credit

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