How to Get a Business Equipment Loan
by Fundid on Apr 29, 2022 12:00:00 PM
Whether a business is just starting or it has an essential piece of equipment that needs replacing, having the right equipment is necessary to help a business grow.
A challenge is that business equipment like forklifts, computers for office staff, cement mixers, and more tend to have a high price tag. If you do not have the funding to buy the new equipment, loans exist to help business owners purchase equipment. These business equipment loans can help you buy the equipment you need sooner. How does a business owner get a business equipment loan? We’ll dive into that question and more in this blog.
What are Business Equipment Loans?
A business equipment financing loan is a loan given to a business owner to buy equipment for the business. Business equipment loans work a little bit differently from other small business loans. Equipment loans are asset-based financing, so the equipment is the collateral for the loan. Business owners can get an equipment loan for up to 100 percent of the value of the equipment that they are purchasing; the amount is usually determined based on the business’s qualifications.
FURTHER READING: A Business Owner's Guide to Business Loans
Some lenders will even include additional financing to cover the costs of things like delivery, assembly, installation, and warranties on the equipment, to help you get your equipment up and running as soon as possible. Not every lender will do this, but some are willing to add to the loan to cover these one-time costs. Sometimes the lender is willing to cover 125 percent of the costs, with the additional 25 percent for these one-time fees. Others may only cover 75 percent of your equipment costs and include the other 25 percent to cover the expenses instead; this depends entirely on the lender.
How to Get a Business Loan for Equipment
To apply for business equipment loans, you need to find a lender in your area: a bank, credit union, Small Business Association (SBA) lender, or an online lender. Then, you need to apply for the loan and meet whatever qualifications they require to get the loan. Like with other business loans, an equipment loan will look at your credit history, financial history, and any other conditions they may have in place for lending. If you meet these requirements, you will be able to get the loan. If you do not qualify at one lender, there are many more, so you can always try to obtain your business equipment loan elsewhere.
Where Can I Get a Business Equipment Loan?
You can get a business equipment loan at a bank, credit union, SBA lender, or online. Depending on your industry, you may be able to find a lender who specializes specifically in that, which can also help you get the loan.
Why Do I Need an Equipment Finance Loan?
You may be asking yourself, “why do I need a special equipment loan instead of a regular loan?” Let’s look at some of the pros and cons of getting a business equipment loan instead of another type of small business loan.
Pros of an Equipment Loan
Since the equipment in the loan is your collateral, these loans may be easier for a startup or a small business owner who does not have good credit to get than a standard business loan.
The equipment loan can help free up some of your capital to invest in different parts of your business. If you have been spending a lot on maintenance for the machine you are replacing, that will free up those funds too. Sometimes, having more cash can make a huge difference for a small business.
Business equipment is expensive, and, as your equipment ages, you will have to conduct more maintenance on it, or it will eventually break down. You will find yourself paying more and more on upkeep for your equipment, which can eat into your bottom line pretty quickly. But, saving up the money to get a piece of new equipment can be even more difficult sometimes. A business equipment loan can be highly beneficial to any small business owner.
You can get a business equipment loan for any equipment your business needs for most industries. Equipment loans are not limited to heavy equipment like forklifts. For example, if you need a new commercial oven for your bakery, new medical equipment for your clinic, farm equipment, or fleet vehicles, you may be able to get equipment loans for them.
The payments are a fixed rate for the entire business loan, so you will not have to worry about inflation increasing those payments.
Another great perk of buying this new equipment with your loan is that you can write it off on your taxes at the end of the year. The interest you pay on the loan is also something you can write off on your taxes.
Equipment loans usually come with competitive interest rates and long loan terms, making them affordable for purchasing equipment.
Cons of an Equipment Loan
If your loan has a personal guarantee or blanket lien, your lender can claim that equipment as one of your business assets if you default on your payments. However, you may be able to get your equipment loan without a personal guarantee.
Many lenders will require a down payment of up to 20 percent of the loan amount, but saving that money up will still be less than you will need to buy the equipment immediately.
If the equipment you need is likely to become outdated in the next few years, you may find yourself owning something that is not current anymore by the time you finish paying off your loan. You are then stuck with old equipment that you may have to replace.
Business Equipment Loans vs. Commercial Equipment Loans
You may have heard of business and commercial equipment loans as two separate things and wonder what the difference is between the two. While commercial loans are technically for businesses, the term is often used when referring to bigger businesses. So, a small business would get a business loan, but a medium or large business would get a commercial loan. Commercial loans may be larger than business loans because they will bigger businesses. Otherwise, there is no real difference between the two terms.
When you require new equipment, if saving up for it will take longer than you can keep using the old equipment, a business equipment loan can be highly beneficial to a small business owner. These loans can come with more favorable terms than a regular business loan, and you may be able to qualify a little faster, though that varies depending on the lender you choose.
Do you need an equipment loan to help grow your business? Visit our website to learn more about Fundid Capital to find out how you can get the capital to grow faster.