Equipment financing is a type of loan designed specifically to purchase machinery and equipment used to run your business. Your business can't move forward if you don't have the right equipment, and major equipment purchases can leave a company struggling to pay bills. Equipment financing is the easiest way to purchase business equipment.
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What is Equipment Financing?
Equipment financing is a type of funding or small business loan to acquire machinery or equipment for your small business. Equipment loans that can cover a broad range of financing needs in virtually any industry. Equipment financing can be used for office furniture, kitchen equipment, farm machinery, medical equipment, computers; or really any piece of equipment.
There are two types of financing for business equipment that are most popular. The type of business financing you choose to acquire your equipment will depend on your business needs such as cash flow considerations, amount of time you require to pay off the financing, monthly payments you can afford, types of equipment, and your credit history.
Types of Equipment Financing for Small Businesses
Small business owners may choose the “purchase” finance option which works like a conventional loan. Financing companies and other lenders agree to lend you money to make an outright purchase of the equipment and you own the equipment.
Purchases usually require an upfront, down payment from the borrower and make monthly payments until the loan is satisfied. The lender may run a personal credit report and ask for a personal guarantee of repayment from the business owner.
How to Qualify for Equipment Financing?
Equipment loans are generally easier to qualify for than a term loan or other conventional financing. That’s because the financing is often secured by the piece of equipment that is being financed. The lenders will almost always place liens on the equipment, but may also ask for other collateral.
Most equipment manufacturers will work with finance companies that help to finance their products. In some cases, the manufacturer will provide the financing directly.
It’s not uncommon for an equipment manufacturer to provide very low-cost or interest-free financing for their products, especially older versions that may be lingering in their inventory.
You may want to inquire about manufacturer finance or used equipment that has been returned from an expired lease. This could save you thousands of dollars.
Alternatives to Equipment Financing
Equipment financing is one of the best ways to finance machinery or larger equipment purchases. However, business owners may look to other forms of financing.
Business Line of Credit
Using existing lines of credit is immediate and can allow your company to make quick purchases.
The U.S. Small Business Administration offers programs that business owners can use to acquire business equipment. The most popular program is the SBA 7(a) loan.