Table of Contents
- Equipment Loan and Financing Calculator - Find Out What You Can Afford
- Using the Equipment Financing Calculator
- Factors That Impact Financing Cost
- Equipment Financing Example
- Equipment Financing vs. Leasing
- Final Thoughts
Equipment Loan and Financing Calculator - Find Out What You Can Afford
Whether you work in an office with dozens of custom computers or as a landscaper with a fleet of zero-turn mowers, your business needs certain tools, vehicles and other gear to keep it running smoothly. However, outfitting your business with specialty equipment can be expensive, and the real cost to finance those purchases is often hard to estimate without an equipment loan calculator. This easy equipment financing calculator will help you understand the terms and costs to finance those purchases.
Even when your operating cash flow can’t handle a major purchase on its own, equipment loans can help cover the upfront costs and allow you to pay over time. To find out what your payments and overall costs might look like over different loan terms or percentage rates, just plug your numbers into this equipment finance calculator.
If you’re new to equipment financing, read on. The text below has all the definitions, details, comparisons and examples of how equipment financing works. We’ll explore how to use an equipment loan calculator to estimate your costs, so you can read your results and decide which financing product is right for you.
Estimate Your Costs with the Equipment Financing Calculator
As the equipment loan calculator is an estimation tool that provides a range of possibilities depending on creditworthiness and term selected, we encourage you to experiment with different interest rates and repayment periods. Terms can be adjusted on the equipment finance calculator to increase or decrease your payment.
Step 1: Enter the total value of the equipment you plan to finance.
Step 2: Enter the estimated interest rate into the equipment finance calculator. These rates typically fall within the 8% to 24% range depending on your unique business qualifications and any down payments made.
Step 3: Select the length of financing in months. Your term will depend on your business’s eligibility.
Step 4: Calculate. The equipment financing calculator will output the monthly payment, total repayment amount and the cost of financing.
Components of the Equipment Loan Calculator
The equipment loan calculator has three primary inputs:
The Principal Loan Amount
For equipment loans, specifically, the principal loan amount directly refers to the total value of the equipment you’re buying. However, the loan may not be for that total value. Whether you receive an offer for the full value of the equipment you intend to buy depends on the lender you’re working with, your unique business qualifications and the total value of the equipment being financed, not to mention any portion of the price you decide to pay up front.
There’s always a cost to access funds to improve your business. With equipment loans, lenders express these costs through interest rates and APR. Here’s how they differ.
An interest rate is the most common term used to describe the cost of borrowing money. Essentially, this is the amount charged by a lender against the principal loan, and it’s expressed as a percentage, not including associated fees. This is the rate you would input into the business equipment loan calculator to estimate your payments.
Annual Percentage Rates (APR)
Interest rates aren’t the same as annual percentage rates. An annual percentage rate (APR) is a common term you’ll see describing the total annual costs charged to a borrower for the use of a loan. An APR includes the interest rate and additional costs and fees over a 12-month period. Fees are unique to each lender (some lenders charge no fees), so they’re not included in the equipment loan calculator.
Since APR includes your total costs — including interest and fees that vary by lender — it’ll be higher than the interest rate and presents a more complete view of what you can expect to pay for that specific loan.
Most fees that would impact APR are applied at the beginning of the loan, or when something happens during the term, like a missed payment. The most common fees include origination fees, application fees and closing costs.
The Loan Term
At its core, a loan’s terms comprise: how long you have to pay back the loan, the payment frequency and the expectations the borrower and lender are held to.
When determining the loan term, lenders consider what the business needs and what they qualify for within their lending structure. Unless you pre-pay, the term and the number of monthly payments is fixed. Payments are typically made monthly, but can vary depending on the lender you choose and your business’s unique qualifications.
The term also explains each party’s rights and responsibilities as well as what would occur should something go wrong during the relationship.
An Example of How to Use the Equipment Loan Calculator
Say your construction company is expanding and you need to invest in more heavy equipment. While you were able to find a good deal on a bulldozer for $60,000, you don’t have the room in your budget to support this large of a purchase.
By working with an equipment financing company, your construction company was approved for a portion of the total cost of the equipment. Using the heavy equipment loan calculator, let’s see just how much your construction company will pay in total.
Your construction company receives a 75% loan for a $60,000 bulldozer.
Total Cost of Bulldozer: $60,000
Loan Amount: $45,000
The lender charges a 13% interest rate with a 24-month loan term against the $45,000 financed. Using our heavy equipment financing calculator, we get the following estimates:
Monthly Payment: $2,139
Total Interest Paid: $6,345
Total Repayment: $51,345
Your construction company is still responsible for the remaining $15,000 to purchase the bulldozer.
Total Repayment: $51,345
Remaining Difference: $15,000
The commercial equipment loan calculator calculates your overall costs to be $66,345.
The Difference Between Equipment Financing & Equipment Leasing
There are two common ways to finance equipment: equipment loans and equipment leases. While each method helps you achieve your goal, there are significant differences and each has its pros and cons. (Note: This equipment loan calculator is built to estimate the terms of equipment loans for purchases. It does not function as an equipment lease calculator and cannot provide equipment lease payment estimates.)
A business equipment loan allows you to purchase and eventually own equipment for your company in exchange for regular, incremental payments which include both the interest and principal of the loan. You’re able to secure up to 100% of the value of the equipment being financed, though some lenders do require a down payment between 10% and 20%.
These loans are typically secured through the equipment being financed. Lenders do this by placing a lien against the equipment as a form of collateral against your debt. While a personal guarantee isn’t required by every lender, the structure of the equipment loan may carry over to other business assets. If you were to default on your loan payments, any liens or personal guarantees would allow the lender to seize any business or personal assets used to secure the financing.
A business equipment lease allows you to use equipment purchased by a lender in exchange for a rental fee. For businesses that need to frequently upgrade their equipment, or may not have enough capital for the down payment on an equipment loan, leasing is an attractive option. Most leases offer a buyout option at the end of the term.
While leasing tends to be more expensive than a loan overall, it’s possible your business could write off the total cost of the lease on your taxes. Consult your CPA to find out if you qualify for this kind of writeoff, as well as any other advantages equipment leasing may have for you.
How to Decide Between an Equipment Loan or a Lease
Making the right decision comes down to answering these three questions:
1. What Can You Afford?
Even before using the equipment financing calculator to estimate your payments, you should have an idea of what your budget can support. Monthly payments for a lease will typically be less than a loan, though you’ll spend more overall if you plan to own the equipment at the end of the lease.
If you have the means and the willingness to make a down payment of up to 20% of the total cost of the equipment, a loan may be the best financing option for you. Be mindful of both your long-term plan for the equipment and your willingness to make the down payment.
2. How Long Will You Use This Equipment?
Your future plans for the equipment should influence how you choose to pay for it. For example, if you plan to use an oven for more than 3 years, a loan would likely be the most cost-effective option for that long-term investment.
Conversely, if you don’t think you’ll need the piece in 3 years (either because you’ll want something bigger or better, or it might become obsolete), an equipment lease will provide the flexibility you need. Though the long-term costs may be greater than a loan, the short-term costs are less. And you’ll be able to get the most out of the equipment without having to find a buyer when you want to upgrade.
3. How Long Will This Equipment Last?
Even if the equipment you need has a short shelf life, you can still benefit by using the right equipment financing tool.
By leasing necessary — but quickly outdated —equipment, you’ll be able to get the most out of the appliances, gear and tools without the long-term worry about how to secure proper value for these items. Be sure the equipment you lease will remain viable through the term — you don’t want to be stuck making payments on something you can’t use.
However, if the equipment you need is a workhorse that holds its value for years, owning it (and perhaps eventually selling it) makes more financial sense. An equipment loan offers you the best opportunity to own high-value machines and tools you need to succeed. Use the business equipment loan calculator to estimate your purchase costs and repayment amounts.
The Final Calculation on Equipment Loan Calculators
Determining the total cost of an equipment loan isn’t always straightforward. By plugging your loan amount, estimated interest rate and term into our equipment loan calculator, you’ll have more clarity around what your total costs may be.
Fast Capital 360 has all the facts you need to know about equipment loans. If you have any questions about your equipment loan offer or your equipment finance calculator results, our team of expert business advisors is here to help.