Equipment Financing and Loans for Small Business

Equipment financing is a small business loan structured so that you can buy business equipment by pledging the machine as collateral.

At a Glance

Equipment financing and equipment leasing can allow you to start using the equipment your business needs to generate revenue and pay it off over time. There can be options for all industries, from heavy construction machinery to medical equipment and everything in between. With the equipment itself serving as collateral, you might be able to get lower interest rates than you may see with unsecured business loans.

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Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option
APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
 Get Started
Funding Option
APR
Starting at 6%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
min $120,000
 Get Started
Funding Option
APR
1.15 - 1.42
Factor Rate
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
$120,000
 Get Started
Funding Option
APR
8%–38%
Estimated Apr
Do you qualify?
560+
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
At least $100K
 Get Started
Funding Option
APR
0-9.99%
Estimated Apr
Do you qualify?
680+
MIN CREDIT SCORE
Time in Business
No minimum
Annual Revenue
No minimum
 Free Quote

Advantages & Disadvantages

  • Limited paperwork
  • Quick access to cash
  • Equipment serves as collateral
  • Down payment may be required
  • Depreciation will reduce tax deductions
  • Equipment could quickly become obsolete

What is Business Equipment Financing?

Since many small businesses don’t have the working capital to afford new equipment outright, equipment financing can allow you to borrow money solely for the purpose of purchasing commercial equipment.

 

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option


APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
 Get Started
Funding Option


APR
Starting at 6%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
min $120,000
 Get Started
Funding Option


APR
1.15 - 1.42
Factor Rate
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
$120,000
 Get Started
Funding Option


APR
8%–38%
Estimated Apr
Do you qualify?
560+
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
At least $100K
 Get Started
Funding Option


APR
0-9.99%
Estimated Apr
Do you qualify?
680+
MIN CREDIT SCORE
Time in Business
No minimum
Annual Revenue
No minimum
 Free Quote

How Does Equipment Financing Work?

Loans for equipment use the equipment itself as collateral, meaning they’re secured loans that don’t put the rest of your business at risk.

The loan doesn’t even have to be put towards new equipment in some cases; used equipment financing may be an option if you want to stick to a budget or are purchasing items with a long lifespan.

What Types of Loans are Out There?

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.

How Much Does It Cost?

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.

How To Qualify

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option


APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
 Get Started
Funding Option


APR
Starting at 6%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
min $120,000
 Get Started
Funding Option


APR
1.15 - 1.42
Factor Rate
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
$120,000
 Get Started
Funding Option


APR
8%–38%
Estimated Apr
Do you qualify?
560+
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
At least $100K
 Get Started
Funding Option


APR
0-9.99%
Estimated Apr
Do you qualify?
680+
MIN CREDIT SCORE
Time in Business
No minimum
Annual Revenue
No minimum
 Free Quote

Credit approval is extremely important, and lenders are going to look at your personal finances as well as those of your business.

To improve your chances, get the following details of your business in order:

1
Credit History

Start off by requesting a free copy of your credit report.

Make sure everything is accurate and try to address any negative items that might impact your ability to borrow.

Your credit report doesn’t show your actual credit score, so be prepared to pay a small fee if you want to know what it is before you get started.

2
Financials

Your business financials are also scrutinized as part of the loan application process.

Prepare your cash flow statements and also pull together a narrative business plan.

This can help explain your current business line and address any notable items in your cash flow statement.

3
Business Plan

Then talk about your future growth opportunities and how getting a loan from a capital finance company will help you take advantage of those opportunities.

Put a lot of thought and care into your business plan; after all, not only do you want to qualify for the loan, you also want to do your own due diligence to make sure taking out the loan is a good idea in the first place.

If you need help getting started, do a quick online search of business plan templates for ideas.

4
Is it Right for your Small Business?

Any financial decision for your company should be weighed heavily before making the final call.

The same holds true when determining whether or not this option is right for you. Here are a few things to consider.

First, remember that when you buy your commercial equipment outright, you gain equity in your equipment.

As you pay down your loan over time, this purchase transitions from a debt to an asset.

By leasing, you never build any equity — you’re paying money each month to use it, but you eventually have to give it back with nothing gained on your balance sheet.

5
Tax Benefits

You might also be able to take advantage of a few different tax benefits when you use a commercial equipment loan.

IRS Section 179 allows you to deduct up to $500,000 of equipment purchases, even if it’s financed.

Just be sure to consult with your accountant or financial advisor before making any tax-related decisions.

6
What About Equipment Leasing?

Equipment leasing is another option if you’re hesitant to take out a loan to fulfill your commercial equipment needs.

In some cases, you could even use the lease payment as an expense deduction on your taxes.

Equipment Leasing vs. Equipment Loans

Rather than taking out a loan to make a purchase outright, you could instead make monthly payments while leasing equipment, then return everything when the lease term is over.

You can look for an an industry-specific company like heavy equipment leasing companies, or select broader capital equipment leasing companies.

Some scenarios in which you’d benefit from leasing are as follows:

Money Is Tight

One of the biggest benefits of leasing equipment rather than buying it is that it requires little to no down payment.

So it’s a great option if your company doesn’t have a ton of working capital available for large purchases.

Some companies also allow you to finance at least part of the soft costs, often up to 25%.

Again, that can be a huge help to a company struggling to find the cash to get financing for equipment.

There’s No Advantage To Owning Equipment

But equipment leasing isn’t just for cash-strapped small businesses.

If you don’t plan on using the equipment you need for more than a few years, you might not want the hassle of having to sell it once you’re done with it.

Or maybe the specific type of commercial equipment you need doesn’t hold its value over time.

In that situation, you could have little to no equity in the equipment by the time you pay your loan off.

The Equipment Will Quickly Become Obsolete

Another instance when leasing could be better than buying is if you expect the technology of your particular item to depreciate or change considereably over the next few years.

So if you’re in the medical industry or IT field, or any other area where technology plays an integral role, think about what equipment you’ll need in a few years and how quickly your purchases today will need to be upgraded.

If you do end up leasing, keep in mind that you’ll have to pay a residual at the end of the term if you decide you want to keep it.

Also compare equipment lease rates before making a decision to make sure you’re working with the best company available.

GENIUS TIP: Lease rates often vary depending on whether or not you want to include a buyout option at the end.

How to Get Started

In order to expedite the process, you should have certain documents ready.

Here’s what you’ll need to get started:

  • Driver's License
  • Voided Business Check
  • Bank Statements
  • Credit Score
  • Business Tax Returns
  • Equipment Quote

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option
APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
 Get Started
Funding Option
APR
Starting at 6%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
min $120,000
 Get Started
Funding Option
APR
1.15 - 1.42
Factor Rate
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
$120,000
 Get Started
Funding Option
APR
8%–38%
Estimated Apr
Do you qualify?
560+
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
At least $100K
 Get Started
Funding Option
APR
0-9.99%
Estimated Apr
Do you qualify?
680+
MIN CREDIT SCORE
Time in Business
No minimum
Annual Revenue
No minimum
 Free Quote

Important Disclosures. Please Read Carefully.

Persons facing serious financial difficulties should consider other alternatives or should seek out professional financial advice. This website is not an offer to lend. Lendgenius.com is not a lender or lending partner and does not make loan or credit decisions. Lendgenius.com connects interested persons with a lender or lending partner from its network of approved lenders and lending partners. Lendgenius.com does not control and is not responsible for the actions or inactions of any lender or lending partner, is not an agent, representative or broker of any lender or lending partner, and does not endorse any lender or lending partner. Lendgenius.com receives compensation from its lenders and lending partners, often based on a ping-tree model similar to Google AdWords where the highest available bidder is connected to the consumer. Regardless, Lendgenius.com’s service is always free to you. This service is not available in all states. If you request to connect with a lender or lending partner in a particular state where such loans are prohibited, or in a location where Lendgenius.com does not have an available lender or lending partner, you will not be connected to a lender or lending partner. You are urged to read and understand the terms of any loan offered by any lender or lending partner, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you. By submitting your information via this website, you are authorizing Lendgenius.com and/or lenders and lending partners in its network or other intermediaries to do a credit check, which may include verifying your social security number, driver license number or other identification, and a review of your creditworthiness. Credit checks are usually performed by one of the major credit bureaus such as Experian, Equifax and Trans Union, but also may include alternative credit bureaus such as Teletrack, DP Bureau or others. You also authorize Lendgenius.com to share your information and credit history with its network of approved lenders and lending partners. For qualified consumers, our lenders offer loans with an Annual Percentage Rate (APR) of 35.99% and below. For qualified consumers, the maximum APR (including the interest rates plus fees and other costs) is 35.99%. All loans are subject to the lender’s approval based on its own unique underwriting criteria. Example: Loan Amount: $4,300.00, Annual Percentage Rate: 35.99%. Number of Monthly Payments: 30. Monthly Payment Amount: $219.36. Total Amount Payable: $6,581.78 Loans include a minimum repayment plan of 12 months and a maximum repayment plan of 30 months. In some cases, you may be given the option of obtaining a loan from a tribal lender. Tribal lenders are subject to tribal and certain federal laws while being immune from state law including usury caps. If you are connected to a tribal lender, please understand that the tribal lender’s rates and fees may be higher than state-licensed lenders. Additionally, tribal lenders may require you to agree to resolve any disputes in a tribal jurisdiction. You are urged to read and understand the terms of any loan offered by any lender, whether tribal or state-licensed, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

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Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.