What is Equipment Financing?
Equipment financing is a specialized loan or lease that lets you acquire equipment, vehicles, or software with payments spread over time. Business owners typically have the option to lease or purchase equipment with a loan.
The four primary benefits of equipment financing over a cash purchase include preserving working capital, ensuring predictable monthly payments, potential tax advantages, and immediate access to the equipment. Businesses across most industries require expensive equipment to operate. Examples of equipment that companies finance include:
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Restaurant equipment
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Computers, software, and office furniture
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Heavy construction equipment
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Heavy industrial equipment
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Work trucks (dump trucks, flatbeds, etc.)
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Landscaping equipment
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Delivery vans & box trucks
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Farm equipment
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Manufacturing equipment
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Gas station & convenience store equipment
Equipment Loans vs. Equipment Leasing
You end up owning the equipment when you take out a loan. It’s similar to a car loan in that the lender holds a security interest in the title while you pay off the loan. Once fully repaid, the lender releases the lien, and you own it outright. At that point, it becomes an asset you can continue using or sell and upgrade to new equipment. Business equipment loans are best if you want to own the equipment outright.
An operating lease essentially lets you rent equipment for an extended period. You may get a lower monthly payment, but you don’t own the equipment at the end of the term. Some equipment leases will include an option to purchase the equipment at fair market value.
Some companies offer a $1 buyout lease (sometimes referred to as a capital lease) that allows you to purchase the equipment for $1. However, your monthly payment would be similar to an equipment loan.
How does Equipment Financing work?
Each lender has different borrowing amounts, terms, and rates. Equipment financing loans through United Capital Source have the following features:
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Loan amounts: Up to $5 million per piece of equipment.
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Rates: Factor rates starting at 3.5%.
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Terms: 1-10 years.
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Funding speed: 3-10 business days.
The equipment financing process starts with finding the equipment you need. You’ll need the equipment invoice when you apply.
In most cases, the lender pays the vendor directly for the equipment. However, using the funds from a business term loan to purchase the equipment is also possible. That process would be like using a personal loan to buy a vehicle rather than a car loan.
The equipment you’re financing is the collateral. If the business defaults, the lender repossesses the equipment. This is known as a self-collateralized loan. Car loans and mortgages are also self-collateralized loans.
Once approved for financing, you can sign the equipment financing agreement. After that, the lender issues funds to purchase the equipment. The equipment seller delivers and installs the equipment, and you can begin using it.
Most equipment loans and leases carry fixed monthly payments. It’s also possible to get quarterly payments. Credit-challenged business owners may receive frequent payment terms, such as daily, weekly, or bi-weekly.
Down Payment
Some lenders offer 100% financing, while others require a down payment. Many equipment lenders in our network offer low- or no-down-payment options. The required down payment can vary from lender to lender.
On the other hand, SBA loans and many traditional lenders do require a down payment. You can usually expect to pay 10%-20% when it’s necessary.
It can be challenging to find equipment financing if you have a poor credit history. Some lenders might add a down payment requirement, or you can consider offering one to help offset the risk associated with a low personal credit score.
Soft Costs
Soft costs refer to the associated expenses besides the purchase price of the equipment. Examples include taxes, delivery and installation fees, and other applicable charges.
Some lenders include soft costs as part of the financing package, and others don’t. It’s important to know if you can get those costs covered because you could end up paying a lot more out of pocket than expected if not.
What are the Best Equipment Financing Lenders?
The best equipment financing lender for your business depends on your unique needs and qualifications. Most business equipment loans come from a bank or online lender. Other equipment financing companies include equipment manufacturers and specialized financing companies.
You’ll typically need good personal and business credit to qualify. Many lenders will also consider your annual gross sales. Each financial institution has different rules about financing new or used equipment.
Here’s our list of some of the best equipment financing companies to consider.
Crest Capital
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Best overall.
Features:
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Amounts: Up to $250k for a simple application, up to $500k with more documentation.
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Terms: 24-84 months.
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Interest Rates: Undisclosed.
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Funding speed: Same-day approval is possible.
Qualifications:
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Minimum credit score: Unlisted.
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Minimum annual revenue: Unlisted.
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Minimum time in business: 2 years.
Crest Capital tops our list of equipment lenders because of its flexible funding options, online reputation, and over three decades of experience. The Atlanta-based alternative lender specializes in equipment finance for small and medium-sized businesses (SMBs).
It offers a straightforward online application for equipment financing of up to $250,000. With extra documentation, it can finance equipment up to $500,000. Small business owners can finance a wide range of equipment, including software and business vehicles.
The lender provides 100% financing, including soft costs, so getting equipment with no down payment is possible. The company also offers various lease options to meet your equipment needs.
US Business Funding
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Best for flexible equipment options.
Features:
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Amounts: Up to $200k application-only; up to $50 million with a full financing package.
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Interest Rates: Starting at 3.5%.
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Terms: 24-72 months.
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Funding speed: Possible as soon as 24 hours.
Qualifications:
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Minimum credit score: Unlisted.
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Minimum annual revenue: Unlisted.
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Minimum time in business: 2 years for most programs.
US Business Funding is an online lender that provides equipment financing with competitive interest rates for small and medium-sized businesses (SMBs). Small business owners can apply for equipment financing up to $200k with a simple one-page application and minimal paperwork.
It also has higher borrowing amounts when applying for a full financing package, which includes more in-depth information. The lender was established in 2004 and has since funded over $2 billion in loans. It’s based in Santa Ana, CA.
It’s our choice for equipment options because the lender finances both new and used equipment, as well as private party sales. It also provides many equipment lease and deferred payment options.
OnDeck
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Best for short-term financing.
Features:
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Amounts: Up to $250k.
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Interest Rates: 29.9%-97.2%.
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Terms: Up to 24 months.
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Funding speed: Same-day funding is possible.
Qualifications:
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Minimum credit score: 625.
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Minimum annual revenue: $100k.
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Minimum time in business: 1 year.
OnDeck is a reputable alternative lender that provides business term loans up to $250,000 with terms of up to 24 months. It also provides business lines of credit.
It’s our top pick for short-term financing because it’s easy to apply for and provides fast funding. Business owners can potentially obtain same-day urgent equipment financing to meet their needs.
SmartBiz
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Best for SBA Equipment Financing.
Features:
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Amounts: Up to $5 million.
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Interest Rates: 6% – 18%.
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Terms: Up to 10 years.
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Funding speed: Several weeks.
Qualifications:
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Minimum credit score: 675.
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Minimum annual revenue: $50k.
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Minimum time in business: 2 years.
SmartBiz is an alternative business lending marketplace specializing in simplifying the SBA loan process. It also attempts to expedite the process.
SBA loans are often considered the gold standard of small business financing. The US Small Business Administration (SBA) partially guarantees up to 85% of the loans.
That gives SBA-approved lenders the security to offer higher borrowing amounts at lower rates and longer terms. Business owners can purchase equipment using the SBA 7(a) loan or the SBA 504 loan.
CIT Group
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Best for traditional bank experience.
Features:
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Amounts: Up to $500,000 for application only; $1 million with financials.
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Terms: 6 months – 5 years.
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Interest Rates: Start at 5.49%.
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Funding speed: as fast as 24 hours.
Qualifications:
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Minimum credit score: Unlisted.
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Minimum annual revenue: Unlisted.
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Minimum time in business: Unlisted.
CIT Group, a division of First Citizens Bank, is one of the leading commercial financing providers in the nation. It mainly serves small and medium-sized businesses (SMBs). The company also offers consumer banking and advisory services.
CIT’s Business Capital equipment financing was recently rebranded as First Citizens Bank Equipment Finance. Small business owners can finance new or used equipment with a loan or lease. You can receive up to $500,000 with an application-only submission or up to $1 million with supporting financials.
You can use financing to purchase various types of business equipment. Companies seeking larger equipment purchases ($3 million – $100 million) would utilize CIT’s Capital equipment financing option.
Taycor Financial
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Best for startups
Features:
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Amounts: $500 – $2 million.
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Interest Rates: 3.49% – 28%.
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Loan Terms: 1-7 years.
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Funding Time: As soon as 24 hours after approval.
Qualifications:
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Minimum credit score: 550.
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Minimum annual revenue: Startup financing available.
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Minimum time in business: Unlisted.
Taycor Financial is a small business lender specializing in equipment loans, leases, and working capital lending products. Borrowers benefit from large borrowing amounts and lightning-fast funding times. It also offers special equipment financing packages for startups.
The lender offers financing options for both used and new equipment, including loans and leases. All the lender’s equipment loan and leasing program options carry a documentation fee, but the fee range is undisclosed.
It’s possible to finance 100% of the total amount on equipment finance loans. Taycor will email, overnight, or hand deliver the documents. Once it receives the documents, it immediately faxes the purchase order to the vendor. You’ll build equity in the equipment as you pay off the loan.
How do I qualify for Equipment Financing?
Each lender sets different qualifications. Approved business owners we work with here at UCS typically meet the following minimum requirements:
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Credit score: 600+.
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Time in business: 1+ years.
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Annual revenue: $250k+.
What are the advantages of Equipment Financing?
The primary benefit of equipment financing is that it enables businesses to acquire essential equipment when they lack the cash to cover the upfront cost of purchasing business equipment. Since the equipment serves as collateral, it may be easier to obtain approval than it would be for an unsecured business loan.
Some equipment lenders are willing to work with younger businesses due to the added security of the built-in collateral. That makes it a viable option for companies less than a year old, including some startups.
Most equipment financing structures are loans, which allow you to retain ownership of the equipment while financing it. However, you also have the option to lease it with some lenders if you’re concerned about it becoming obsolete. Lenders often offer flexible payment options.
Interest payments for equipment financing may be tax-deductible. Check with your accountant or tax pro to ensure your business is eligible for tax savings, such as Section 179 Deductions.
What are the disadvantages of Equipment Financing?
One of the most significant concerns with equipment financing is whether the equipment becomes obsolete during the term of the agreement. There’s no way to predict what the future holds. The asset may lose value while you’re still paying off the loan.
With an equipment loan, you’re responsible for maintenance and repairs. However, most equipment leasing options include the costs of maintenance.
The final major drawback is that you’ll pay interest on the loan terms. It will cost more to finance the equipment than to purchase it outright.
Equipment Financing Pros & Cons
Pros:
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Acquire essential equipment when you can’t purchase it.
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Built-in collateral lowers approval requirements.
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High borrowing amounts & long repayment terms.
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You retain ownership of the equipment with a loan.
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Many lenders also offer leasing options.
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Potential tax benefits for equipment financing.
Cons:
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Equipment could become obsolete during the loan term.
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You’re responsible for repairs with the equipment loan.
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Interest & fees mean the equipment costs more than if you buy it outright.
How to apply for Equipment Financing:
You can apply directly through our one-page application in a matter of minutes or contact one of our loan experts.
Step 1: Ensure the equipment is the right purchase for your business.
You want to make sure the equipment you’re financing is worth the cost of the loan. As you repay the loan, you will build equity in the equipment. You want to ensure the equipment is built to last or will at least have resale value at the end of the loan. Also, as you build equity, you can use that for future business loans.
Some things to consider include the following:
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Will the equipment still be useful when the loan is paid in full?
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What are the anticipated maintenance costs?
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Can your cash flow support monthly payments?
Step 2: Gather your documentation.
When applying for an equipment loan, you need to provide the following:
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Driver’s license.
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The invoice for equipment.
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Voided check from your business checking account.
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Bank statements for the past three months.
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Financial statements.
Step 3: Complete the application.
Go to our application page or give us a call for more information.
Step 4: Speak to a Representative.
After we receive your application, a senior account executive will contact you. You’ll get a complete breakdown of loan amounts, loan terms, interest rates, and fees.
Step 5: Get Approved.
Your equipment loan goes through once your application meets underwriting requirements and receives credit approval. We can help you set up automatic payments, or you can arrange to pay by check or electronic payment.
Frequently Asked Questions
Here are the most common questions about equipment financing companies.
How much does Equipment Financing cost?
Equipment financing costs can vary significantly depending on your credit history, the equipment price, the lender, and the type of loan. On average, equipment financing rates range from 4% to 45% APR.
You also have to consider out-of-pocket costs. One lender may offer a lower interest rate but won’t cover soft costs and requires a significant down payment. Another lender might offer a higher rate but provide 100% financing, eliminating any cash costs.
How do I compare Equipment Financing Companies?
Here are some strategies to compare equipment financing options.
Prequalify When Possible
Some equipment finance companies offer a prequalification process, which won’t affect your credit. Prequalifying allows you to determine if you meet the lender’s requirements and provides approximate rates and payment terms. Prequalifying with multiple lenders lets you compare their costs.
Check Borrowing Amounts
Some small business loan lenders cap equipment financing at lower amounts, such as $250,000. Other lenders, such as those that can offer SBA loans, also offer seven-figure equipment loans. Ensure the lender offers amounts that can cover the equipment purchase price.
Evaluate Customer Support
You never know what issues might arise during the loan and when you’ll need customer service. Verify that the lender provides excellent customer support and offers multiple communication channels for easy access.
Look Out for Additional Fees
Some lenders charge extra fees, such as origination fees, documentation fees, and administrative fees. Others offer no or low-fee financing. Look for lenders with minimal fees, as they can add up.
Down Payments
As mentioned, some lenders require a down payment. While making a down payment lowers the financing amount and can help get a lower rate, not every business has the available cash for the payment. If your company has trouble coming up with a 10%-20% down payment, look for lenders that offer 100% financing.
Customer Reviews
It’s also good to see what your fellow small business owners say about working with the company. Look for Google reviews, Trustpilot reviews, and Better Business Bureau (BBB) complaints.
Traditional vs. Alternative Lenders
Traditional lenders, such as banks and credit unions, typically offer the lowest rates. However, they also have strict qualifications, require extensive documentation, and take a considerable amount of time to fund. A credit score of 650 is the minimum most equipment financing lenders typically require. Most traditional lenders provide fixed interest rates.
Alternative lenders typically have higher rates but provide convenient online applications with fast funding times. Online lenders are also more lenient on credit scores and time in business.
Can I get Equipment Financing with Bad Credit?
It may be possible to obtain equipment financing even with poor credit, as the collateral is built into the loan. However, you still might need a co-signer, a down payment, or a personal guarantee.
Bad credit equipment loans also carry higher rates and fees. As a general rule in all financing (business and personal), the higher your personal credit score, the lower your interest rate.
Equipment Finance Lenders – Final Thoughts
As a small business owner, you have many equipment financing options. While it’s beneficial to have options, finding the best lender for your specific needs can be a daunting task.
The information in this guide can act as a starting point for researching the best lender options. You can also apply to a business lending marketplace, which will match you with the lender that most closely meets your needs and can support your business’s cash flow.
Contact us if you have more questions about the best equipment finance lenders or to apply for an equipment loan. Our business funding experts can help you find the best option for your business.
