Equipment Financing

If you need new machines to expand your company or simply need to upgrade your existing business equipment, then commercial equipment financing could be a solution for you.

Many businesses can’t afford a major purchase all at once, especially when it costs thousands of dollars.

Even if they can, it doesn’t always make financial sense.

A limited cash flow doesn’t have to limit your ability to get the equipment you need.

Construction Equipment & Commercial Trucks

Heavy equipment financing is extremely common, including construction business loans, commercial truck financing, and semi-truck financing…

But you don’t have to be in construction or trucking to qualify.

Medical Equipment

Hospitals, doctor’s offices, and dentists frequently use medical equipment financing options to outfit and upgrade their practices.

Computers & Office

IT equipment financing is common for any small business with an office, because you could use the loan to purchase computers, printers, fax machines, and other daily necessities.

Gym

Fitness centers can go this route to purchase new gym equipment and machines.

Kitchen & Dining Room Fixtures for Restaurants

Restaurant owners can furnish an entire dining room and equip their kitchen with updated appliances.

If your company has the potential to benefit from working capital to either get started or grow an existing line, then this option could be for you.

How Do You Determine the Lender?

First of all, make sure you understand all of the loan terms being offered:

• What are the rates and are they fixed or adjustable?
• How much of an origination fee does the lender charge?
• How long is the loan repayment term?
• Do they cover any soft costs associated with your purchase?

Another important question to ask is what kind of collateral they require.

Some lenders are happy to use the equipment alone as collateral, but some may require more, such as your home or savings accounts.

That can add a lot of risk to any loan, and it may be one you want to avoid.

If you need the cash quickly, look for an equipment leasing company with a quick application approval time.

Keep in mind that traditional financial institutions may take longer to review applicants, while online lenders could turn things around more quickly.

You’ll still need a bit of cash on hand to use when financing equipment for your business.

Let’s explore some of the associated costs-

Down Payment

Just like when you buy a house or a car, equipment financing companies require a down payment on the purchase, sometimes ranging between 10% and 20% of the total price.

Some lenders may only finance the item itself without covering any soft costs like taxes or delivery fees.

Others, however, will allow a portion of soft costs to be rolled into the loan amount.

Interest Rate

Perhaps the most important cost to consider is your interest rate.

That’s the amount of interest you’re charged on your principal balance, which is included as part of your monthly payment.

Obviously, the lower your loan rate is, the more money you’ll save over time.

Fixed interest rates could range between 8% and 30%.

Loan Terms

That leads to another important factor in the determining your total costs: the loan term.

The average heavy equipment loan term is seven years.

If you have to decide between a lower interest rate over a longer repayment period versus a higher rate over a shorter period, do the math to determine which offer saves you more money over time.

You’ll also need to make sure you can afford the monthly payments.

A longer repayment term does spread out your monthly balance, but you’ll end up paying more interest over time.

It’s also a good idea to consult with your accountant on what works best for your specific company.

Origination Fees

Another standard cost when borrowing from lenders is an origination fee.

You’d encounter this fee with just about any type of loan you can take out, so it’s not an uncommon practice.

Origination fees are typically calculated as a small percentage of the loan amount.

Depending on your lender, you might be able to roll the origination fee directly into your loan and pay it off as part of your monthly payments.

How Much Can You Borrow?

The size of your loan depends on the specifics of your intended purchase.

Some lenders only finance 80% – 90% of any type of business equipment loan.

That means if you want to get new heavy equipment and plan on purchasing $250,000 worth of construction machinery, you would only be able to borrow between $200,000 and $225,000.

You’d be responsible for paying the rest of equipment cost as a down payment.

Depending on the company you choose, there might also be a minimum amount you’re required to borrow.

Minimums sometimes range anywhere between $5,000 and $25,000 so this might not be a viable option for small purchases.

In a situation like this, you could either wait to buy more items in bulk or explore other small business loans or lines of credit.