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Business Equipment Financing Loans

By on March 03, 2022 4 min read

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Business Equipment Financing Loans

Many industries require special equipment, which can present significant upfront costs. Business owners can use a special type of business loan known as an equipment finance loan to pay for these resources.

Are you facing steep costs due to a need for specialized equipment? If you need resources to launch or grow your business, read on to learn more about how commercial equipment financing can help you get the equipment you need.

How Does a Business Equipment Finance Loan Work?

What is equipment finance lending? It may be helpful to start by learning more about how equipment financing works. An equipment finance loan is a type of loan specifically designed to help you obtain the machinery, equipment, or technological tools you need to run your business.

A business equipment loan is classified as a type of asset-based financing, which means that the equipment itself will serve as collateral for the loan. You can receive an equipment finance loan for up to 100% of the value of the machinery you purchase and repay the loan according to the terms and interest rates set by your lending institution.

FURTHER READING: A Business Owner's Guide to Business Loans

In some cases, you can obtain commercial equipment financing for up to 125% of the value of the equipment, which means you’ll use the excess to cover the cost of delivery, installation, warranties, assembly, or any other upfront costs relating to your equipment.

Types of Equipment You Can Finance

There are no hard rules about what type of equipment you can finance with this type of loan, though most institutions reserve their loans for specialized equipment unique to certain industries. For example, you can obtain an equipment finance loan to cover the cost of items such as:

  • Construction and manufacturing equipment
  • Medical, dental, or veterinary equipment
  • Gym or athletic equipment
  • Cameras, projectors, or sound equipment
  • Commercial vehicles
  • Major office appliances

In addition to these specialized types of equipment, small business equipment financing is also available for items such as office furniture, fixtures, and phone systems.

What to Consider When Getting a Business Equipment Loan

Before committing to an equipment finance loan, there are some key factors to consider, including:

  • What is the interest rate, and how long is the term?
  • Will the loan cover the cost of delivery, assembly, warranty, etc.?
  • Do I need the equipment long-term, or would I be better off leasing?
  • Will an equipment loan require me to put up a large down payment?

Keep in mind that these types of loans tend to vary widely, mainly because the types of equipment can be so diverse. This variability means that the APR on your commercial equipment loan can range anywhere from 4% to 30%, depending on the institution and the type of equipment you’re purchasing.

equipment guide

Equipment Financing vs. Equipment Leasing

If you’re planning on using specialized equipment throughout the lifetime of your business, then an equipment finance loan is a wise investment. But if you plan on using this equipment for 36 months or less, you may be better off with equipment leasing.

What is equipment lease financing? Leasing allows you to rent the necessary equipment from a vendor or specialized equipment leasing company. When you lease your equipment, you’ll pay a leasing fee, and you may also be assessed an additional fee for wear and tear to the equipment itself.

You’ll lease the machinery or tools you need for a specified term, and at the end of this term, you will return the equipment. Depending on the terms of your lease, you may have the option to renew your term or even buy the equipment outright.

How Else Can You Use a Business Equipment Loan?

Business owners may be pleased to know that business equipment financing can cover a wide variety of financial needs. Equipment finance loans can also be used to:

  • Purchase specialized equipment or technology
  • Repair or upgrade equipment
  • Purchase inventory
  • Temporarily manage your cash flow
  • Provide working capital for daily operating expenses
  • Consolidate business debts
  • Resolve outstanding accounts payable
  • Cover taxes, tags, title, or insurance expenses
  • Purchase land or a facility
  • Acquire other businesses
  • Purchase additional equipment
  • Finance marketing campaigns
  • Expand business operations

However, keep in mind that every lending institution will have slightly different terms and conditions pertaining to the loan you receive. You’ll likely be asked to specify the exact needs of your business during the application process.

Some lenders will allow you to finance multiple needs or pieces of equipment on the same contract. This can be particularly useful if your business is purchasing equipment for a designated project or if you need to purchase a collection of resources as part of your company’s overall startup costs.

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How to Get Equipment Financing

Are you wondering how to get equipment financing? The process starts by finding the right lending institution. In some cases, you may have to select your lender based on your credit history or other terms and conditions. Your best choices are as follows:

Banks and Credit Unions

The most favorable terms and rates will often be found at a traditional bank or credit union, many of which have specialized divisions dedicated to business loans such as commercial equipment financing. 

Some local banks may even be set up to help you obtain equipment from local vendors, which can save you on delivery or other setup costs.

The flipside is that these institutions typically favor highly-qualified applicants. You can expect to need a personal credit score of 700 or better to obtain the most favorable rates, and applicants with lower scores may be denied altogether.

SBA Lenders

The U.S. Small Business Association (SBA) has been helping business owners across the country obtain the funding they need to thrive. 

An SBA lender might be found at certain banks and credit unions and offer an equipment finance loan with low-interest rates and a term length of roughly ten years (though this can vary based on your equipment).

However, like the loans offered by commercial banks, SBA lenders typically favor highly-qualified applicants with credit scores of 690 or better and a solid financial history.

Online Lenders

Many online lenders offer equipment finance for business owners with less-than-stellar credit. Plus, these online lenders often offer rapid approval times to help you obtain your equipment when you need it.

The drawback is that these types of loans can be expensive, with high-interest rates and unfavorable terms. Business owners should research these lenders thoroughly to protect themselves from scammers or overly usurious institutions.

Alternatives to Business Equipment Financing

An equipment loan isn’t the only way to fund your business. Small businesses might also consider alternatives to equipment financing, such as:

  • Leasing equipment you only need for 36 months or less
  • Small business loans
  • Opening a line of credit
  • Financing your equipment directly through the vendor
  • Raising capital from investors

These alternatives are worth exploring, especially if your credit history prevents you from obtaining a favorable loan through traditional means.

Equipping the World of Business

An equipment finance loan can be just the thing you need to launch or grow your business. But you’ll likely also need a healthy cash flow to invest in all other areas of your operation and help your business thrive in our changing world.

Need funding to grow your business? Fundid is re-imagining how businesses get the funding they need to grow. Explore your options through Fundid Capital

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About Fundid

Fundid is driven by a mission to empower business owners on their growth journeys by simplifying business finance & access to capital. 

We spend our time thinking about what the world would look like if the 80% of businesses that have under 10 employees had access to the capital they needed to grow and thrive. We're solving this with our Business Capital, Business-Building Card, and Resources that include our business Grant Match Program.

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