Equipment Financing

We assist you in navigating through all the available options for equipment financing that your business requires.

Introduction to Equipment Financing Loans

Are you a small business owner aiming to acquire costly new equipment without the need for a significant down payment or high interest rates? You no longer require extensive cash reserves or detailed financial documentation. Business Equipment Financing and Equipment Leasing offer a variety of loan options that go beyond traditional bank loans.

With business equipment loans, you can benefit from affordable monthly payments, much like equipment leasing. Moreover, once you’ve paid off the loan balance, you will own the equipment outright.

Here's the deal:

Small business owners often face challenges with equipment costs, whether for upgrades, maintenance, or unexpected breakdowns. Buying equipment can strain cash flow, underscoring the importance of financing.

Approval rates for small business equipment financing are notably high compared to other funding options, with online lenders and traditional banks such as Wells Fargo and Bank of America typically achieving approval rates around 80%. The application process is streamlined, requiring minimal paperwork. Small business owners can secure funding within days, often with low or no down payment and competitive rates starting at 5%, which may also qualify for tax deductions.

In this guide, we’ll explore:

What is Equipment Financing and Who is it For?

Equipment financing stands out as a specialized business loan specifically designed for acquiring equipment. Unlike general term loans, equipment financing is tailored exclusively for funding equipment purchases. This option offers significant benefits for small business owners, including low or no down payments, favorable repayment terms, and competitive interest rates.

Typically, alternative lenders and most equipment financing providers allow borrowers to use the equipment itself as collateral. This arrangement helps lower interest rates and may enable borrowers to access higher loan amounts. These advantages contribute to better cash flow management when addressing equipment needs.

Loan Amounts and Requirements:

Small businesses can typically secure up to 100% of the required loan amount for purchasing or leasing equipment through equipment financing. Depending on the lender, a down payment and minimum credit score may be required. Because the equipment serves as collateral, businesses often enjoy lower interest rates compared to alternative financing options such as unsecured business credit lines, invoice factoring, merchant cash advances, or other types of small business loans.

MAX FUNDING AMOUNT

Up to $5M per piece

FACTOR RATES

Starting at 3.5%

TERM

1 - 10 years

SPEED

3 - 10 Business days

How Does Equipment Financing Work?

Business equipment financing operates similarly to traditional term loans in terms of payment structure. Borrowers make fixed periodic payments, encompassing both principal and interest, until the principal balance is fully repaid. By the end of the term, the business owner gains full ownership of the equipment.

Equipment financing options allow businesses to borrow substantial amounts, potentially up to $5 million per piece of equipment, making it particularly suitable for financing heavy machinery. Interest rates offered by equipment finance companies typically start as low as 5%. Qualifying for equipment financing generally requires a minimum credit score of 600 or above, ensuring accessibility for many businesses.

Businesses can utilize equipment financing to acquire a wide range of equipment, including computers, printers, office furniture, farm equipment, industrial machinery, vehicles, construction equipment, and specialized equipment like medical or restaurant equipment.

The equipment itself serves as collateral for the loan, which helps secure a lower interest rate and facilitates quicker approval times. When applying for equipment financing, businesses may need to provide details such as purchase price, age, seller information, and manufacturer details to determine the equipment’s value and ensure sufficient security for the lender.

Furthermore, equipment financing offers potential tax benefits through Section 179 Tax Deductions, which can substantially reduce a business’s tax liability for eligible equipment purchases. It’s advisable for business owners to consult with their accountant or tax professional to fully comprehend and maximize any tax implications associated with equipment financing.

Example of How Business Equipment Financing Works:

Business equipment financing offers businesses the flexibility to expand and enhance operations without lengthy savings periods, providing a strategic advantage and competitive edge.

Consider a bakery aiming to triple its cupcake production. To achieve this goal, the bakery needs to invest in an industrial oven priced at $75,000.

Opting for equipment financing, the bakery secures a five-year term with a competitive interest rate starting at 5%. The oven itself serves as collateral, enabling lower interest rates and potentially higher loan amounts compared to other financing options. Moreover, equipment financing typically does not require a personal guarantee.

Over the five-year term, the bakery makes regular payments towards the equipment financing loan. By the end of the term, the bakery owns the oven outright, enhancing operational efficiency and supporting business growth.

Equipment Financing Options Are the “Go-To” Source for Growth

In 2021, the equipment finance industry reached a record high of $1.16 trillion, according to Monitor Daily. Approximately 80% of companies purchasing equipment or software opted for various financing options.

The Equipment Leasing and Financing Association reports that 60% of U.S. small business owners rely on equipment financing and leasing to support smooth operations and steady growth.

As of 2023, equipment financing boasts one of the highest approval rates among small business loan types, standing at 87%. This significant increase from 76.3% in 2020, as reported in the 2023 Report on Employer Firms based on findings from the 2022 Small Business Credit Survey, indicates that nearly nine out of ten applicants successfully secure equipment loans from equipment lenders.

Additionally, the Equipment Leasing and Financing Association noted a 6.3% increase in new business volume in 2022, underscoring the growing popularity and accessibility of equipment financing solutions.

What Are the Advantages of Equipment Financing?

Equipment financing offers substantial advantages for small businesses seeking larger loan offers with favorable terms, even with less-than-perfect financial profiles.

  • Collateral-Based Financing: Equipment loan finance companies use the purchased equipment as collateral. This approach minimizes risk for lenders, allowing them to offer lower interest rates and longer repayment terms. It’s advantageous for businesses that may have lower credit scores, irregular cash flow, or limited operational history.

  • Ownership of Assets: Unlike leasing, where businesses only rent equipment, equipment financing allows businesses to own the asset outright once they complete the payment terms. This ownership provides long-term financial benefits and asset value appreciation.

  • Tax Deductibility: Interest payments on equipment financing are typically tax-deductible, offering businesses additional financial advantages. While lease payments may also qualify for deductions, owning the equipment outright ensures maximum tax benefits over time.

  • Cost-Effectiveness: Purchasing equipment through financing often proves more cost-effective in the long run compared to leasing. Businesses avoid continuous lease payments and gain full ownership of the asset, reducing overall costs over the equipment’s lifespan.

  • Flexibility and Adaptability: Equipment financing is tailored to meet the specific needs of businesses, offering flexibility in loan amounts, repayment terms, and asset types. This flexibility allows businesses to acquire essential equipment without straining cash flow or operational budgets.

Overall, equipment financing empowers small businesses to enhance operational efficiency, maintain competitive edge, and achieve long-term financial stability through asset ownership and tax advantages.

What Are the Disadvantages of Equipment Financing?

Equipment financing, while advantageous in many respects, comes with several considerations that businesses should carefully evaluate:

  1. Risk of Obsolescence: One concern with equipment financing is the risk that purchased equipment may become outdated before the loan is fully repaid. Technological advancements and industry changes can swiftly render equipment less effective or valuable, potentially impacting its usefulness and resale value.

  2. Maintenance Responsibilities: Owning financed equipment also entails responsibility for maintenance and repair costs. Unlike equipment leasing, where these expenses are often covered by the leasing company, businesses must budget for and manage maintenance, which can add to the total cost of ownership over time.

  3. Interest Costs: Financing equipment involves paying interest on the loan amount, which increases the overall cost compared to paying upfront. While interest payments may be tax-deductible and manageable with competitive rates, businesses should calculate the total cost of financing versus outright purchase to ensure it aligns with their financial goals.

These factors underscore the importance of evaluating both the short-term benefits and long-term implications of equipment financing. Businesses should assess their operational needs, financial capabilities, and future growth plans to determine whether equipment financing is the most suitable option for acquiring necessary assets.

PROS
CONS

Equipment Financing Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Equipment Financing?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$250K+

CREDIT SCORE

600+

TIME IN BUSINESS

1 year+

How To Apply For Equipment Financing

The equipment financing application process is efficient and streamlined, supported by our highly-rated customer service. Here’s a straightforward guide to applying:

Step 1: Assess if Purchasing is Ideal

Before proceeding, evaluate whether purchasing the equipment aligns with your business’s strategic goals. Consider factors such as potential obsolescence, long-term necessity, and cost-effectiveness compared to leasing. This assessment ensures your investment meets your operational needs and financial capabilities.

Step 2: Gather Required Documents

Prepare the following documents for your equipment financing application:

Step 3: Complete the Application

Complete our straightforward online equipment financing application, which typically takes just a few minutes. Alternatively, reach out to us directly to speak with a dedicated account manager who can guide you through the process.

Step 4: Consult with a Representative

After submitting your application, a senior account executive will contact you to discuss your equipment financing options. We prioritize transparency, providing clear details on loan offers, rates, and terms to ensure there are no hidden fees.

Step 5: Approval and Disbursement
Upon credit approval and meeting underwriting criteria, your equipment financing loan will be established. Funds will be disbursed directly to the equipment vendor. You can opt for automatic payments or arrange payment via check or electronic transfer.
Utilizing Your Equipment Financing

Beyond equipment acquisition, utilizing your financing responsibly enhances your credit profile. Timely payments and maintaining a low balance on revolving credit lines can boost both personal and business credit scores. This sets the stage for securing favorable terms on future financing needs.

By following these steps diligently, you’ll optimize your equipment financing experience and position your business for continued financial growth and stability.

What If I’m Declined For Equipment Loans?

If your application for business equipment financing doesn’t receive approval, we understand the importance of exploring alternative small business loans and financing solutions tailored to your needs. These options enable business owners to still acquire necessary equipment, though they may come with terms that differ slightly from equipment loans, such as higher interest rates or shorter repayment periods.

For instance, you might consider alternatives like term loans or other types of small business financing. These options provide flexibility and can accommodate various financial circumstances.

If challenges such as poor credit scores or cash flow issues contributed to the decline of your equipment financing application, exploring alternatives such as business credit cards or personal loans could be beneficial. These solutions typically have more lenient eligibility criteria than traditional small business loans, offering a pathway to secure financing despite past challenges.

Improving your credit score through credit repair services is another proactive step that can enhance your eligibility for favorable financing terms in the future. Additionally, exploring options available through local credit unions may provide specialized financing solutions tailored to your specific business needs.

By exploring these alternatives and taking steps to strengthen your financial profile, you can position your business for continued growth and success, even if equipment financing isn’t immediately feasible.

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