How to Get Commercial Equipment Financing

As a business owner or manager, it's not uncommon to buy equipment to support your company. Such equipment could be for your office, such as a copy machine, or you could need equipment for manufacturing or producing goods or services that your business sells. 

Commercial equipment can be one of the most expensive items you purchase for your business. Obtaining a loan may be required to get the equipment you need.

What Is Commercial Equipment Financing?

Commercial equipment financing refers to obtaining a loan specifically to buy equipment used in a business. With a commercial equipment loan, you’ll be able to purchase one or more pieces of new or used equipment. 

Since these types of loans are specifically designed for business equipment, there may be more options for lenders than you may otherwise be able to access through more traditional lending means. 

The equipment financing term lengths will vary by the type of equipment that you buy and your lender. You can often negotiate different repayment terms with equipment sellers, or your equipment lender may have specific term lengths that they offer based on the equipment you buy.

Equipment financing is typically easier to qualify for than other types of loans. You may be able to obtain a loan to finance equipment even without an excellent credit score since the lender will use the equipment you purchase as collateral. 

Commercial equipment finance companies also offer fixed commercial equipment financing rates, so your monthly payment is unlikely to change. 

Types of Commercial Equipment Financing

There are several types of loans for commercial equipment that you can use. The types of equipment financing include traditional equipment loans, SBA CDC/504 loans, term loans, and a business line of credit or business credit card.

Traditional Equipment Financing Loans

The traditional commercial equipment finance model is sought out by relatively new companies that haven’t had a chance to build up their credit history. A loan for commercial equipment is usually offered directly by the equipment retailer. 

Since the equipment is used as collateral, companies don’t typically require more than a 10% down payment unless you are deemed a particularly risky buyer. 

Equipment loans can provide access to funding very quickly. You may be able to complete the entire lending process within a day or two. 

Frequently, you can choose the length of your lending term — if you don’t have lots of cash available for monthly payments, you may have the option for extended terms. Once you’ve paid off your loan, you’ll fully own the equipment.

While there are numerous advantages to obtaining an equipment financing loan, there are also a few disadvantages. Borrowers should be wary of choosing longer loan terms if the equipment is likely to become outdated quickly. 

Otherwise, they may be forced to take on additional equipment loans within a few years for updated equipment. Keep in mind that equipment financing loans are only available for equipment purchases. They can’t be used for any other business purpose.

SBA CDC/504 Loans

SBA loans are administered by traditional lenders, including banks. They are secured by the Small Business Administration and can be used to purchase equipment. 

These types of loans are attractive to business owners because of their low-interest rates and extended repayment terms. An SBA loan can provide a repayment period of up to 25 years. If a company chooses this type of loan, it may use it to purchase business equipment or for any other kind of business purpose. They are not locked in to only using the funds for equipment.

The main drawback of an SBA loan is that it is only available to the most qualified applicants. Your business must be able to show a good credit score and solid financials. Applying for an SBA loan is a lengthy process, so it may take several months before you can obtain the funding your company needs.

Term Loans

A term loan is considered the most traditional type of commercial loan. It can be used to purchase business equipment or for any other type of business purpose. Term loans include short-term and medium-term loans and are repaid with fixed monthly payments over time.

Depending on your company’s operating history and credit score, you may need to offer additional collateral outside of the equipment that you are purchasing as collateral. In some but not all cases, a personal guarantee is required. 

Traditionally some term loans can be challenging to qualify for without good credit. However, if you do qualify, you may be able to obtain a greater amount of financing — often more than $250,000. This option is helpful if you are planning to purchase very expensive equipment since equipment lenders will often only provide funding for amounts less than $250,000.

Business Line of Credit or Credit Card

A business line of credit or business credit card can be considered types of working capital loans. This type of financing can typically be used for any business purpose, including purchasing equipment.

Once a line of credit is established, you can use it to borrow as much as you need up to your credit limit and make repayments based on the current balance and your set interest rate. 

Interest rates on business lines of credit or credit cards may be high compared to other loan types, especially depending on your company’s credit history and time in business. Some credit cards may offer an introductory period of 0% for a certain period, which can be helpful for companies that plan to purchase equipment and pay back the principal in a short amount of time. 

Where Can I Get Commercial Equipment Financing?

You can obtain commercial equipment financing through traditional banks or credit unions. Some large commercial equipment retailers also offer to finance businesses that purchase equipment directly. Online lenders are also an option, though for some, interest rates and terms may not be as favorable. It’s a good idea to review your options to get the most favorable terms.

A few well-known lenders that you can work with include:

Funding Circle

Funding Circle provides equipment loans to companies with strong credit. It is one of the most difficult lenders to qualify with, but you can expect favorable lending terms and interest rates. Cash is usually available within three business days. You may be required to provide a business lien and a personal guarantee.

Credibility Capital

Credibility Capital is an online lender that provides business term loans. Unlike with many banks, you can choose to pay your loan off in a quicker period without incurring a prepayment penalty. To obtain the loan, you will need good credit. A business lien is required.

Fundid

Fundid offers term loans, business lines of credit, and equipment loans to companies in need of financing. They specialize in helping businesses access the capital they need to grow and thrive. Requirements to qualify for a commercial equipment loan are low — you can obtain a loan with a credit score of 550 or more, only six months in business, and monthly revenue of $4,000 or more. You can apply with an easy online application.

The company works with a variety of lenders, and when you apply for a loan, you’ll receive several different offers that you can review and choose from. If you choose to apply for financing through Fundid, you will work with a dedicated loan advisor to help you through the process.

What’s Next?

Both new and established businesses can benefit from funding to ensure that they have the equipment needed to run their operations. Understanding the different types of funding available can help determine the best options to suit a company’s needs. 

If you need funding to grow your business, learn more about Fundid Capital to find out how you can get capital to grow faster.