How hard is it to get an equipment loan

Full Guide to Equipment Loans: Everything You Need to Know

Equipment loans can be very helpful if your Business needs new costly equipment/machinery or replaces the old ones. Whether it's restaurant equipment, construction equipment, medical equipment, semi-truck, or other machinery equipment, Equipment financing can help business owners ensure the necessary funding.

What is an equipment loan?

Equipment financing is the best type of loan used to obtain business equipment by small business owners with a hassle-free term loan, easy repayment tenures, and flexible funding options to eligible buyers. Equipment Loans can help your Business to remain competitive. It can be obtained with simple documentation, and you can avail of it from many banks and online lenders with competitive interest rates.

What can you use an equipment loan for?

An equipment loan is a type of financing you can use to buy business equipment of your need. Equipment financing can be easier to get approved, and since it is a type of loan that helps businesses improve, the interest rates by different banks are competitive. Businesses can use equipment financing to purchase or lease the broad varieties of equipment they need.

These are a few examples of what you can take an equipment loan for

  1. Printers & Copiers
  2. Medical Equipment
  3. Commercial Use Vehicles
  4. Computers
  5. Office Furniture
  6. Heating, Ventilation, and Air Conditioning Units
  7. Construction Equipment
  8. Mining Equipment
  9. Commercial Kitchen equipment

If your Business needs heavy and costly equipment/machinery to help grow your business, an Equipment loan can help your Business with the big purchase and break it into small manageable installments to pay over time, removing the burden of an upfront heavy cost on businesses.

How Does Equipment Loan Work?

  • In Equipment loans, the equipment itself is collateral for the loan. Equipment financing typically comes with a fixed interest rate with periodic payments to repay the loan to the lender. Equipment financing tenure usually ranges from as low as three years to a maximum of ten years.
  • Like many other loans, depending on the lender, you must pay a down payment between ten percent and twenty percent in most equipment loans. The higher the down payment is, the more chances are that interest rates will be low.

What are the types of equipment financing?

Equipment loans help businesses with the purchase or lease of necessary business equipment. Your Business has many options to finance the new equipment you need, from general term loans lines of credit to small business administration (SBA) loans. Choosing the right loan for your Business can help you avoid higher payments and loan defaults.

Here is a list of types of equipment financing loans-

  1. Term loans are unsecured loans based on your business finances. It is often hard to qualify for and comes with higher interest rates since it is an unsecured loan and tough to recover by the lender if the Business enters into losses.

  2. Small Business Administration loans are supported by the government and have lower interest rates with a downpayment of only ten percent. SBA loans have three major categories to help you finance your business equipment.

    1. Express Loans SBA approved limit $350k (36 Hours processing time)

    2. Microloans For New businesses, owned especially by women, minorities, etc. More easily accessible but limited to $50k for equipment.

    3. 504 Loans Designed for large equipment purchases, Max limit $5.5 Million, repayment varies from five to 10 years.

  3. Equipment loans are the standard and straightforward financing options for new equipment by simply providing information about your Business and type of equipment requirement. Often Provided by banks and other lenders, but in many cases, the seller provides you with the option of financing so you can compare and pick the best available option for your Business.

  4. Equipment leases allow you to lease the equipment by paying no downpayment and smaller payments.

  5. Startup equipment loans are easier for new businesses, with no risk to the owner since the equipment acts as collateral. You may have few options since not all lenders provide loans for startups, but it could narrow our search for the right one.

  6. There are a few more options, such as business lines of credit, equipment loans for bad credit, etc.

Pros and cons of Equipment loan-

If you are still deciding whether to get the equipment loan or lease, these carefully curated equipment financing pros and cons can help you decide.
Pros

  1. Equipment financing helps you with your smaller monthly payments, protecting your company's cash flow that could help expand other operations.
  2. Adding new equipment will help scale your Business to another level, boosting your company's growth without spending extra time or years to save up for the equipment cost.
  3. Equipment financing can help newer businesses without any other collateral since the equipment is the collateral. Small or struggling can't usually afford heavy equipment, but with equipment loans, they can purchase the equipment with just a 10%-20% downpayment.
  4. You could get a tax write-off for purchasing the new equipment and claim equipment loan payments as an operating expense, potentially reducing your tax liability. Consult with your respected accountant for tax deductions.

Cons-

  1. Since it's a loan, you will pay interest to the lender, which will cost you way more than the original equipment.
  2. Equipment financing may save your cash flow initially. Still, you will be making regular payments plus interest to your lender irrespective of whether your equipment is generating revenue or sitting idle due to different business conditions.
  3. If you miss out on several payments, your loan can be declared defaulted, which will heavily impact your Business and personal credit score. Your equipment could be seized along with personal assets if you used them as collateral.

Is Equipment loan an asset?

An equipment loan can be considered an asset if the equipment/machinery you are taking out the loan for is going to generate sufficient revenue for you that it will not be making a big dent every month with payments, and you can easily afford the regular payments with the minimum chances of default.
Large businesses take loans for heavy machinery so they can use the equipment without paying the full cost and preserving cash flow to invest in the other areas of your Business to expand further growth.

What is the importance of an Equipment Loan?

An equipment loan can help your Business afford the expensive and substantial assets that will help it prosper. Since, in equipment financing, the equipment itself acts as collateral, this can help many new businesses, small businesses from marginalized communities, and bad credit borrowers to fix their Business and their credit.

Since it's a loan, with every loan comes a charge, interest, and probably processing charges. Let's compare your top choices of lenders before you sign any loan documents.

Final Words-

As explained above, there are various loan options for the new equipment you are looking to buy for your Business; the perfect choice depends on how your Business's day-to-day needs are set up and how this new addition of equipment will help make your business work even more smoothly. Before final consideration, you should compare available options and ensure this new equipment works successfully in your business plan.

Frequently Asked Questions

What can you use an equipment loan for?

Businesses can get equipment loans for purchases of-

  • Copiers and Printers, Office Furniture, Heating and Air Conditioning Units
  • Medical Equipment, Commercial Equipment, Industrial Equipment,
  • Commercial Kitchen Equipment, Commercial Vehicles. Etc.

Is it hard to get a loan for equipment?

An equipment loan is a hassle-free term loan with options for easy repayment tenures and flexible funding options to help grow your business and keep it strong in the competition.

How long does it take to receive an equipment loan?

Usually, it varies based on the lender, but in most cases, it takes somewhere between ten to fourteen days after it has been approved by the lender after the credit check and business inspection.

Worth Reading: 5 things to consider before taking a loan

Where can I get an equipment loan?

Often, the seller himself provides financing with backing from a bank or an alternative lending company. Otherwise, most large banks, credit unions, and online lenders provide equipment loans. Online lenders are the fastest available options but have the highest interest rates.

How much will an equipment loan cost?

There are usually two costs associated with equipment loans: Interest charges and processing fees. Depending on the lending partner, interest rates usually vary between 14% to 20%.

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Olivia Johnson 07 Sep, 2023

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