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 heap of cash reserves or to provide endless financial statements. You can do it with the help of Business Equipment Financing & Equipment Leasing. Small business owners now have many loan options when financing equipment, not just the local bank.
With business equipment loans, you can enjoy small monthly payments almost as if you were equipment leasing. Better yet, the business owner owns the new equipment outright once the balance is paid off.
Many owners of small businesses have something in common, and that’s equipment cost. Whether we’re talking about upgrading it or breakdowns, purchasing equipment costs money and maintenance and can strain your cash flow.
The approval rate to get small business equipment financing with online lenders and even local banks like Wells Fargo and Bank of America is among the highest of all funding products. Typically, it’s hovering around 80%. 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 qualifies for a tax deduction.
The business equipment financing option is very similar to term business loans, the only difference being it’s specifically for purchasing equipment. Because equipment financing is so advantageous, small business owners can purchase what they need with a low or no down payment, easy repayment terms, and save money with competitive rates.
In general, equipment loan alternative lenders and most equipment financing lenders will allow the borrower to use the asset as collateral, so they’re protected; thus, the rate is lower and could increase the loan amount. All of these points can help cash flow when you need to finance equipment.
How much can you borrow with business equipment loans?
Typically, the small business can get up to 100% of the loan amount needed to purchase equipment and equipment leasing. 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 with regard to payment options. You pay fixed periodic payments (including principal and interest) every month until the principal balance is paid in full. In the end, you own the equipment free and clear.
You can borrow up to $5 million per piece with the business equipment loan options available, perfect for heavy equipment financing. The interest rate with an equipment finance company starts at as low as 5%. To qualify for equipment financing, you don’t need excellent credit. All you need is to have a 600+ minimum credit score.
Businesses can get equipment financing to purchase:
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 find out the value, the equipment loan finance company may ask for information about the equipment purchases, including the purchase price, age, seller, and manufacturer info, among other items. The equipment financing lender needs this info to ensure they can recoup their investment in case of a default.
Equipment financing works by giving you the means to grow your business without the need to save for long periods. This often gives businesses the edge, letting them outperform their competition.
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 higher loan amount than you would with other funding products. Also, you most likely won’t need a personal guarantee with equipment finance.
After making regular equipment financing loan term payments for five years, the balance is paid off, 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 get larger loan offers with low interest and a longer term, they generally need collateral. This is understandable, as equipment loan finance companies want to ensure their risk is minimal in the case of a default. The equipment financing lender will grant favorable terms for their equipment loans by simply using the equipment as collateral. This is possible even if their credit scores don’t rival a blue-chip company or the annual revenue isn’t in the seven-figure range.
As a matter of fact, an alternative lender (or traditional bank) might even overlook the age of a new business with collateral in the picture. With secure financing equipment loans, the purchased asset acts as collateral. For this reason, even small businesses 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 with a short-term business loan only because they don’t have collateral to reduce the risk.
Financing equipment also allows you to own the asset instead of leasing. Though equipment leasing has advantages, there’s a good chance it will cost more money than purchasing in the long run. 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. So instead, you make monthly payments, which helps 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 ‘pros’ 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 would be about new equipment becoming outdated over time. It’s a valid concern. Nobody can predict what the future holds or what their annual revenue will be. Industries are evolving at an accelerated pace. It would mean that by the time equipment loans are paid off, the asset might be worthless. The worst-case scenario would be that the asset would lose most of its value while still paying off the equipment loan. In these cases, equipment leasing would’ve saved more money.
Another equipment financing drawback would be fixing 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 have to pay interest on a term loan. It costs more going down the equipment financing road than buying 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||$5k – $1m||Starting at 1-6% p/mo||1-2 business days|
|SBA Loan||$50k-$5.5m||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 $1m||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||$5K – $1m||Starting at 1-6% p/mo||1-2 business days|
The equipment financing application process is quite fast, and our 1450+ 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, amount, and if 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 even purchase the equipment. You should also make sure 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 you can do it within a few minutes. You can either fill out our one-page equipment financing online application. 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 gets set up when your application passes underwriting guidelines and gets 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 arrange to pay by check/electronic payment.
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 of your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance well below the credit limit. These steps will positively impact your personal credit score as well as your business credit score. 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 other small business loans and financing options to fit your specific needs. With this secondary option, business owners will be able to purchase equipment. However, the terms might not be as favorable as an equipment loan. It will mean a slightly higher interest rate and short term. Possible examples include term loans or other types of 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 get equipment financing would be 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 score before applying with an equipment financing company. These services can raise your personal credit score by focusing on the credit standards 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 potentially impact your ability to access commercial mortgages, a business line of credit, or trade credit from vendors.
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 become the new owner of a piece of 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 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.
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.
When small business owners check out financing options for construction equipment or other business needs, it’s best to have a high credit score. The better the credit score, the better loan options they will get. To get started, business needs have to be established. Then it can be decided if it’s the right choice to get new or used equipment. In most cases, new equipment is the only option. Best of all, a great equipment financing agreement could run for ten years. A good funding expert can get the best rates for various small business loan options.
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.