To learn more about how to get equipment financing, please continue reading:
Are you a small business owner wondering how to get expensive new equipment with a low or no down payment? Or without paying high rates? You don’t need a large cash reserve or endless financial statements. You can do it with the help of Business Equipment Financing & Equipment Leasing. Small business owners now have many financing options for equipment, not just local banks.
With business equipment loans, you can enjoy small monthly payments, almost as if you were leasing equipment. Better yet, the business owner owns the new equipment outright once the balance is paid off.
Look:
Many small-business owners have something in common: equipment costs. Whether we’re talking about upgrades or breakdowns, purchasing equipment and maintenance costs money and can strain your cash flow.
The approval rate for small-business equipment financing from online lenders and traditional banks such as Wells Fargo and Bank of America is among the highest of any funding product. Typically, it hovers around 80% across most financial institutions, including credit unions. The application process and payment options are straightforward. The paperwork needed for equipment financing is minimal. Best of all, small business owners can get funded in a matter of days, with a low or no down payment, and enjoy better rates (starting at 5%), which in most cases qualify for a tax deduction.
The business equipment financing option is very similar to term business loans, with the only difference being that it’s specifically for equipment purchases. Because equipment financing is highly advantageous, small business owners can purchase what they need with low or no down payment, flexible repayment terms, and save money with competitive rates. Equipment financing allows immediate equipment use while the revenue it generates helps offset payments. Financing can cover soft costs such as shipping and installation, thereby preserving cash flow.
In general, equipment loan alternative lenders and most equipment financing lenders will allow the borrower to use the asset as collateral, thereby protecting the borrower. As a result, the rate is lower, and the loan amount may increase. These points can help cash flow when you need to finance equipment.
How much can you borrow with business equipment loans?
Typically, small businesses can get up to 100% of the loan amount needed to purchase and lease equipment. In some cases, a down payment and minimum credit score may be required for equipment financing. Since the asset is collateral, you’ll save money with equipment financing because the interest rate would be lower than other equipment finance options like unsecured business credit lines, invoice factoring, merchant cash advances, or different types of small business loans.
Many small business owners ask, “How does business equipment financing work?” Equipment financing works similarly to term business loans in terms of payment options. You make fixed monthly payments (including principal and interest) until the principal balance is paid in full. Ultimately, you own the equipment free and clear.
With the business equipment loan options available, you can borrow up to $10 million per piece, perfect for heavy equipment financing. The interest rate with an equipment finance company starts at Prime + 3.5%. To qualify for equipment financing, you don’t need excellent credit. You only need a credit score of 600 or higher.
Examples of what businesses can purchase using equipment financing include:
The above list is only a few of the equipment types available. Businesses seeking unique or niche equipment and machinery can also benefit from equipment financing.
As mentioned above, with business equipment loans, the asset is the collateral. That’s why the interest rate starts this low, and you don’t have to wait weeks because quick approval is prevalent.
To determine the value, the equipment loan finance company may request information on the equipment purchase, including the purchase price, age, seller, and manufacturer, among other details. The equipment financing lender needs this information to ensure they can recover their investment in the event of a default.
Equipment financing also offers potential tax savings with Section 179 Tax Deductions. The program was initially intended for business vehicles, but can now reduce a business’s tax liability for most business equipment. Business owners can still use Section 179 vehicle deductions as well. Ensure you consult your accountant or tax pro to verify any potential tax implications.
Equipment financing provides the capital to grow your business without requiring long-term savings. This often gives businesses an edge, enabling them to outperform their competitors.
Let’s say you’re a baker. To increase your cupcake productivity by 3x, you need an industrial oven, which costs $75,000.
You can negotiate a five-year term with as low as 5% interest by applying for an equipment loan. But, again, because you’re using the oven as collateral, you’ll save money by getting a lower rate and potentially a higher loan amount than you would with other funding products. Also, you most likely won’t need a personal guarantee with equipment finance.
The balance is paid off after five years of regular equipment financing payments, and you own the equipment outright. Equipment financing is the best way to acquire expensive machinery for your business needs.
For a small business to secure larger loans at lower interest rates and over longer terms, it generally needs collateral. This is understandable, as equipment loan finance companies want to minimize their risk in the event of a default. The equipment financing lender will offer favorable terms on equipment loans secured by the equipment. This is possible even if their credit scores don’t rival those of blue-chip companies or their annual revenue isn’t in the seven-figure range.
An alternative lender (or a traditional bank) might even overlook a new business’s age when collateral is involved. With secure financing equipment loans, the purchased asset acts as collateral. For this reason, even small companies with a subpar credit rating, an imperfect balance sheet, imperfect cash flow, or less than two years of business banking activity can apply for equipment financing.
On the other hand, if the same company applied for a standard term loan, the situation would be different. They would have to pay higher rates on a short-term business loan because they lack collateral to reduce risk.
Financing equipment also allows you to own the asset rather than lease it. While equipment leasing offers advantages, it’s likely to cost more over the long term than outright purchase. You’ll find out more about this in a bit.
Also, keep in mind that the primary purpose of equipment financing is to avoid paying the entire cost upfront. Instead, you make monthly payments, which improves cash flow.
Did you know that interest payments are usually tax-deductible? It’s a significant selling point for many businesses and one of the primary equipment financing ” risks ” to think about. Although lease payments may qualify for a tax deduction, why not own it instead?
With all the benefits listed, let’s go into the cons of equipment financing.
The first concern is that new equipment will become outdated over time. It’s a valid concern. No one can predict what the future holds or their annual revenue. Industries are evolving at an accelerated pace. This means the asset may be worthless when the equipment loans are repaid. The worst-case scenario is that the asset loses most of its value while still paying off the equipment loan. In these cases, equipment leasing would save more money.
Another drawback of equipment financing is the need to repair the equipment when it breaks down. If you own it, you have to fix it. On the other hand, if you’re leasing, the equipment financing company handles the maintenance and repairs.
The final drawback of an equipment loan is that you must pay interest over the term. It costs more to finance the equipment than to buy it outright.
As you can see, equipment financing has many pros and a few cons, so it’s a good choice for certain companies that are ok with the loan terms and a bad one for others.
| LOAN TYPES | MAX AMOUNTS | RATES | SPEED |
|---|---|---|---|
| Merchant Cash Advances | $7.5k – $1m | Starting at 1-6% p/mo | 1-2 business days |
| SBA Loan | $50k-$10m | Starting at Prime + 2.75% | 8-12 weeks |
| Business Term Loan | $10k to $5m | Starting at 1-4% p/mo | 1-3 business days |
| Business Line of Credit | $1k to $250k | Starting at 1% p/mo | 1-3 business days |
| Receivables/Invoice Financing | $10k-$10m | Starting at 1% p/mo | 1-2 weeks |
| Equipment Financing | Up to $5m per piece | Starting at 3.5% (SBA) | 3-10+ business days |
| Revenue Based Business Loans | $10K – $5m | Starting at 1-6% p/mo | 1-2 business days |
The equipment financing application process is fast, and our 1500+ 5-star-reviewed customer service makes it simple. First, the process with most online lenders takes 3-10 business days, depending on the loan terms and amount, and whether the equipment/vehicle needs to be registered with the local government.
Here are easy steps you can follow to apply:
For some companies, it’s easier and better to make a lease payment than to own. So before applying, make sure you ask yourself these questions:
This will help us determine the right terms and repayment options for the equipment financing loan – or if you should purchase the equipment. You should also ensure you know the current market value and final invoice price. This will ensure that you request the right amount.
Equipment financing applicants must provide the following information and documents:
The application process is fast and can be completed in a few minutes. You can complete our one-page equipment financing application online. Or call us so a dedicated account manager can guide you through the process.
Once we receive your application, a senior account executive will contact you. We’ll review your best equipment financing options and fixed-term business loan offers on this call. You will get absolute transparency. There are no hidden fees or surprises. You will know precisely what loan options, rates, and terms you can expect for the equipment financing option you choose.
Your equipment financing loan is set up once your application meets underwriting guidelines and receives credit approval. Next, the cash gets sent directly to the merchant. Depending on your convenience, we’ll either help you set up automatic payments, or you can pay by check/electronic payment.
Your term loan isn’t just a way to get equipment financing. It’s also an excellent opportunity to start building (or improving) your credit.
How do you get the best interest rate and terms on your future equipment loan?
The rules are pretty simple. Regardless of the type of small business loans you get, it can’t be emphasized enough to make all your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit. These steps will positively impact both your personal and business credit scores. And that means preferred interest rates and terms the next time you need small business financing.
If your application for business equipment financing is declined, we may recommend alternative small-business loans and financing options to meet your specific needs. With this secondary option, business owners can purchase equipment. However, depending on the lender and loan type, the terms may not be as favorable as those for an equipment loan. It will result in a slightly higher interest rate in the short term. Examples include term loans and other small-business loans.
Your equipment financing application may have declined due to poor credit scores or cash flow. In this case, the best way to obtain equipment financing is a business credit card or a personal loan. Both credit cards and personal loans are much easier to qualify for than small business loans. It would be best to consider credit repair services to improve your personal and business credit scores before applying for equipment financing. These services can raise your personal credit score by addressing the factors that are keeping it down. You can also try your local credit union to see their options.
The main factor is how long you plan to use the equipment. If you plan to use it for at least 36 months, most small business equipment loans will likely cost less than an equipment lease. On the other hand, you wouldn’t want to buy something you’re only going to use for a year or two. For this reason, lease terms are often recommended for industries that depend on the latest, most up-to-date equipment.
It’s also important to understand that a lease agreement is still considered debt, just like equipment financing. This could impact your ability to access commercial mortgages, a business line of credit, or vendor trade credit.
Some lenders have buy-back programs in which they purchase the equipment at the end of the loan term for a fair market value. And since equipment often serves as collateral, lenders might repossess the equipment following the borrower’s default. In these cases, business owners may be able to finance used equipment. Just make sure to note the service provider for the equipment. Because the equipment is used, you never know when it may need repairs.
At United Capital Source, we finance everything from office equipment, vehicles, cloud computing software, manufacturing equipment, medical equipment, small business administration equipment, and more. Need a restaurant oven? We can provide restaurant equipment financing for that and other items too.
In most cases, small businesses prefer equipment financing because it makes more financial sense than an equipment lease. Working with equipment financing companies also allows business owners to use their money for other purposes, like marketing, hiring, etc.
Here are some reasons why companies choose to finance through business equipment companies instead of leasing:
Yes, equipment financing interest payments usually qualify for a tax deduction. However, it would be best never to assume this before making equipment finance commitments. Talk to a tax professional familiar with your business program to ensure you receive tax breaks.
Many heavy equipment manufacturers offer to finance their products. However, these programs might feature high equipment financing rates. And since you’re not using the equipment as collateral, the manufacturer might assign a higher rate to offset the risk.
Also, equipment financing programs only allow purchasing the equipment. You don’t get to borrow extra money to cover the attached costs. As any business leader knows, all major purchases naturally create additional expenses. With Equipment Financing, you can negotiate with lenders about borrowing enough money to purchase the equipment and cover extra costs.
Yes, this product is available to borrowers with a bad credit score. Since the equipment is being used as collateral (there are no blanket liens – so your personal assets are safe), your credit score and financial health will only have a minor impact on your interest and terms. Still, the lowest possible rates are typically given to equipment financing borrowers with higher credit scores.
Going with new or used equipment depends on the business and on a case-by-case basis. In most cases, it’s preferred to choose new equipment. Even though it’s more expensive, it has a longer lifespan. In specific industries, small business owners have to keep pace with technology.
Going new could increase productivity or reduce consumption, which is essential in a cutthroat business environment. Used equipment can be a good choice in certain circumstances. For example, when the borrower defaults, the lender (or bank) seizes the equipment and needs to unload it to recoup its principal. This is the most common way to buy used at a discount.
Most lenders require a minimum credit score of around 650 for equipment financing. When applying for equipment financing, a lender may request financial statements and a business plan. Most banks require detailed analysis of credit history when applying for equipment financing. Funding times for equipment loans can vary between lenders, with some offering same-day approval. Some lenders charge extra fees, like origination fees or prepayment penalties.
YES! You can get financing for construction equipment and other types of heavy equipment. This heavy equipment financing product behaves similarly to any term loan for a small business. Since these are often large purchases, equipment financing lenders typically require additional security. The loan may require a down payment and a lien on the equipment as collateral to get started.
You can use equipment financing loan options to get a credit card payment processing app or the credit card POS software system your business needs. These equipment financing options are similar to any term loan or small business loan. To get started, you must decide if you will lease or buy the credit card payment processing equipment outright through a financing option. Online lenders may require a 600+ credit score for equipment financing. It’s easy to get started and get the capital your business needs.
You can use equipment financing loan options to get a credit card payment processing app or the credit card POS software system your business needs. These equipment financing options are similar to any term loan or small business loan. To get started, you must decide if you will lease or buy the credit card payment processing equipment outright through a financing option. Online lenders may require a 600+ credit score for equipment financing. It’s easy to get started and get the capital your business needs.
