Equipment Loans and Financing

When a critical piece of equipment fails, becomes outdated or you simply need more resources to support your growing business, the costs can add up — and quickly. 

Through equipment financing, you can secure the tools you need without depleting your cash reserves.

Business equipment financing is funding you obtain to purchase or lease equipment, tools, technology or machinery you need to operate your business. With equipment financing, the item you’re interested in acquiring serves as collateral for your loan. This means if you’re unable to make your payments, your lender can seize the equipment to recoup their losses.

Equipment loans differ from other types of small business loans in how they’re structured. Unlike some other forms of financing, the use of equipment loan proceeds is restricted. You can only use the funds to purchase a specified piece or lot of equipment. This is in contrast to a business term loan or line of credit where you are free to spend funds flexibly.

With this type of financing, you’re able to fund the purchase of a piece of machinery, furniture, vehicle or another resource for your business — from commercial ovens, tractors and construction vehicles to computers, desks and office supplies. 

You can receive up to 100% of the equipment’s value through business equipment financing. For risky investments, such as items with a high rate of depreciation, lenders may require a 10%-20% down payment.

The amount of funding you receive is determined by what your business qualifies for, as well as the price and condition of the equipment you’re planning to purchase.

With most equipment financing programs, the equipment itself secures the funds. As a result, it’s possible to get equipment loans or leases even if you have fair credit.

Equipment Financing Rates and Terms

Some lenders offer equipment financing rates starting around 8% with terms that can range from 1-5 years. The length of your agreement largely depends on the useful life of the financed item. 

For instance, you can expect a longer-term on a commercial equipment loan or lease if you’re financing a truck or piece of construction equipment versus computer equipment that will become obsolete within a few years.

Payments are made daily, weekly or monthly, depending on the specifics of your agreement.

Equipment loans and financing can be used to purchase or lease new or used equipment. In general, equipment loans are reserved for high-ticket items that retain value, such as vehicles, construction equipment, restaurant gear and manufacturing equipment.

Pros

• Fast funding available: Depending on your lender, you could receive funding within 2 days of approval.
• Self-collateralizing: The equipment secures your financing, so you don’t have to offer additional collateral, such as property or other equipment or money.
• Option to lease: If you won’t keep the equipment for several years it quickly loses value or needs more frequent upgrades, leasing is preferable to a longer-term loan.   
• Frees up cash flow: Financing through a lender and paying in installments is less disruptive to your cash flow than using a large portion of your funds to pay for equipment.

Cons

• Restricted to equipment, tools and machinery:  You can use the funding only for items in these categories. You can’t finance additional hires or acquire another business.
• Down payment may be required: Equipment financing might not cover 100% of the costs, so you could still need to provide funds for the down payment.

Equipment financing is right for businesses that have an opportunity to grow through the acquisition of a certain resource or tool. But the question remains: Should you lease or buy your business equipment? The route you choose will determine how you finance the purchase.

When deciding if you should purchase or lease your business equipment, consider the following:

• How long will you need the equipment?
• What is your business’s current financial situation?
• Will the equipment become quickly outdated?
• Will you be able to maintain the equipment on your own?

Business equipment loans are used to procure equipment you want to own. Durable machines such as cash registers, refrigerators or commercial manufacturing tools — materials you plan to use for 3 years or more — are great examples of items you can get with an equipment loan.

You should consider leasing business equipment if the item you plan to finance will become outdated quickly, such as computer hardware, or if you’re not in a position to provide a down payment or you cannot afford recurring loan payments. 

To give you a better idea of what equipment financing might cost, use our loan calculator to crunch the numbers and estimate your total cost of borrowing.

Exact qualifications vary by lender and the equipment being financed. But typically, to get equipment financing, you’ll need to meet certain requirements specific to time in business, annual revenue and personal credit score.

Many lenders require businesses to meet the following minimum conditions:

• Time in business: 2 years
• Annual revenue: $160k
• Credit score: 620 

You can apply for equipment financing through a traditional lender, such as a bank or credit union. These institutions will typically offer lower rates and higher funding amounts; however, they also have stricter standards to qualify for financing. Newer businesses or businesses that are still building a strong credit history can find more financing opportunities with online lenders. These lenders are more likely to approve businesses deemed a higher risk, but you’ll also potentially pay higher rates.

Most lenders need the following information when you apply for equipment financing.

• Information about you and your business
• Bank statements and/or tax returns
• Information about the equipment you want to finance.

Details will vary depending on the type of equipment, but can include:

• Condition (i.e., new versus used)
• Number of miles or man-hours the equipment has been operated
• Seller information (i.e., private seller or vendor)

Whether you’re financing an expensive piece of equipment that falls outside of your price range or the majority of your capital is invested elsewhere, a business equipment loan is an invaluable tool. Let us connect you with some of the best equipment financing companies to find the right funding option for you. 

• Complete our simple and secure application, and we’ll pair you with lenders for equipment financing. 

  Applying is fast, easy — and most importantly — won’t impact your credit.

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