Equipment financing is available through banks, credit unions, and online lenders. There are several options to choose from, but deciding which is best for your business can be overwhelming if you aren’t sure how they work.
In this guide, you’ll gain a better understanding of how business equipment financing works, what types of equipment it covers, and what to expect with each funding option.
What Is Business Equipment Financing and How Does It Work?
Business equipment financing is a type of loan that allows you to purchase a piece of equipment or machinery for your business. It’s a viable option for business owners looking to acquire equipment without having to front the funds to cover the purchase price. Even better, you’ll get an extended period to repay the lender what you borrow with interest.
Overview of Equipment Financing
- You can use business equipment financing to acquire used or new equipment.
- Some lenders will fund up to 100 percent of the equipment cost, which means you won’t have to put money down.
- The equipment serves as collateral for the loan and can be seized if you default on the financing agreement.
- In most instances, the useful life of the equipment will be equal to or exceed the loan term.
Common Uses For Business Equipment Financing
Business equipment financing is frequently used to purchase the following equipment;
- Heavy Equipment
- Farm Vehicles and Equipment
- Construction Equipment
- Restaurant Gear
- Manufacturing Equipment
Business Equipment Financing Options
Equipment financing refers to loans available through traditional banks, credit unions, and online lenders that can help you purchase much needed machinery for your business. The loan amount, interest rate, and loan term depend on the lender you select and your company’s creditworthiness as well as its overall financial health.
SBA CDC/504 Loans
SBA CDC/504 Loans cater to small business owners seeking funding for long-term equipment and real estate purchases. You could be eligible for a loan of up to $5 million, and the interest rates are quite competitive. However, be mindful that if you’re approved for this type of loan, you’ll make two payments each month – one to the lender and the other to a certified development company (CDC). Furthermore, these loans generally come with extended processing times and may not be a good fit if you need capital in an instant.
These are installment loans that you can use to cover most business expenses, including equipment purchases. You’ll receive a lump sum and make equal monthly installment payments over the loan term since the interest rate is fixed.
Business Line of Credit
A business line of credit works like a credit card. It’s a revolving debt product that you can take draws from on an as-needed basis for a set period. You’ll only pay interest on what you borrow, and you’re free to pay down the principal and use the funds again.
Most business lines of credit require interest-only payments during the draw period. Once it ends, you’ll make principal and interest payments on the remaining balance over a set period. This amount could change, though, as the interest rate is variable on these loan products.
Business Credit Card
Business credit cards should only be used as a last resort to purchase equipment. They often come with exorbitant interest rates, which means you could spend several hundred or even thousands more in interest to repay the initial amount you borrow.
Business Equipment Financing Requirements
Since lenders use the equipment as collateral, they don’t assume as much risk. Nevertheless, you may need good or excellent credit if you’re applying with a bank or credit union.
Time in Business
You’ll need as little as six months in business to qualify for equipment financing. Be mindful that some online lenders will approve startups that haven’t yet been in business for a year.
Personal and Business Finances
Expect the lender to request copies of your bank and financial statements for the past three months. They will analyze your revenues and overall financial health to decide if you’re eligible for equipment financing.
Where to Access Business Equipment Financing
There’s no shortage of lenders offering business equipment financing, making it difficult to find the right fit. Fortunately, National Business Capital simplifies the process by shopping your information to over 75 lenders in its network automatically.
Equipment financing ranges from $10,000 to $5 million with one to five-year terms. If you have a credit score of at least 650, there are no minimum annual revenue requirements, and it doesn’t matter how long you’ve been in business. But if your score is below 650, you’ll need at least six months of business experience and $120,000 in annual gross sales.
Here’s how it works:
- Step 1: Submit the digital application that takes just 60 seconds to complete.
- Step 2: View potential loan offers and work with a Business Finance Adviser to select the best fit.
- Step 3: Receive financing in just two to five days.
It’s that simple, and you can start the process right away by submitting an online inquiry or scheduling a call to learn more.