What is Equipment Financing?
Equipment financing is a loan that helps you purchase new business equipment right away by using that equipment as collateral.
What Do I Need to Qualify?
600+ credit score
$50,000+ in annual revenue
Disclaimer: These are general qualifications. Other information might be considered during your application.
HOW DO I APPLY?
You can technically use any type of loan to buy equipment, but for one where the equipment acts as collateral for the loan, you can apply to online lenders like Balboa Capital or Direct Capital below.
Equipment Financing at a Glance
Equipment financing can be a fast and simple way to fund up to 100% of the value of the computers, machinery, vehicles, or whatever else you need to run your business.
maximum loan amount
Up to 100% of equipment value
Expected life of equipment
8 - 30%
Pros and Cons of Equipment Financing
Quick access to cash
Equipment serves as
Equipment could be obsolete by the time the loan is fully repaid
Might need to depreciate equipment, so you can’t deduct full cost each year
Equipment Financing Qualifications
As it turns out, most businesses can qualify for equipment financing.
How much you qualify for—and the interest rate you’ll pay—depends on the value of that equipment, your business’s financial history, and your credit score.
Equipment financing can be a great option if your credit rating is less than perfect, too, since the equipment acts as collateral:
In fact, equipment lenders are just as concerned with what’s securing their loan as with your borrowing history.
Most Customers who qualified had
Time in Business
Over 2 years
What documents will I need to apply?
Voided Business Check
Business Tax Returns
How does Equipment Financing Work?
It takes money to make money—every small business owner knows that.
Sometimes you just need that new piece of equipment or machinery to seal the deal and start bringing in more revenue…
But how can you afford it?
Fortunately, this is a problem lots of the business owners we work with at Fundera face. And it’s one we can help you solve, too.
Here’s how equipment financing can get you on track to grow your business.
Why It’s Good to Use Equipment As Collateral
When your business needs a certain piece of equipment to get started or reach the next level, a small business equipment loan could be the right move.
You can use equipment financing to purchase almost any kind of business equipment, from computers to cars—and everything in between.
How much you can borrow depends on the type of equipment you’re buying and whether that equipment is new or used, since it actually serves as collateral to secure your loan.
If you’ve ever had a car loan, you’re already pretty familiar with the idea:
The price of that equipment dictates the amount and terms of your equipment financing, and you won’t need to put up any extra collateral.
And here’s a good thing to know:
Most equipment loans are made at fixed interest rates—usually between 8% and 30%—with set term lengths, so you can expect the same payment each and every month.
How Long Does Equipment Financing Last?
How long you can extend the term of your equipment loan depends on the sort of equipment you’re financing, as well as its anticipated lifetime.
Understandably, not too many lenders want to extend their equipment loan terms beyond when that piece of equipment is expected to be useful…
After all, the whole point is that they’re financing a tangible asset that will give your business value.
Equipment Financing vs. Equipment Leasing
Of course, there are other options besides equipment financing.
Some business owners choose to lease instead of getting an equipment loan, for example. There are definitely advantages with leasing, but with an equipment loan, you’ll own that equipment after your loan gets paid off.
On the other hand, with a lease, you only get to use that equipment while you’re paying.
So if you know you’ll need that equipment for awhile, equipment financing could be the right move. But if you’re looking for a temporary solution, a lease might make more sense.
What will Equipment Financing Cost You?
With equipment financing, the thing to keep in mind is that it stops you from needing to pay the entire cost of that equipment upfront.
Instead, you’ll pay it off in regular installments.
However, you’ll be paying more to finance that equipment with an equipment loan than you’d pay if you purchased it outright without financing. The tradeoff is for businesses that can’t afford that kind of large expense or don’t want to deplete their cash with such a large purchase.
The Price Tag on Equipment Financing?
Let’s say you have a piece of equipment you’d like to purchase that costs $10,000.
An equipment financing lender offers to upfront you the cash to purchase that equipment, but they’ll charge you 12% interest over a 3 year (or 36 month) term.
With a 12% APR, that means your $10,000 piece of equipment will actually cost you $11,957.15, with a monthly payment of $332.14.
Some Questions to Ask Yourself
At this point, you’d have to take a look at your business’s financials and ask yourself:
Can you save some money by shelling out $10,000 right this minute and avoiding interest payments, or will that huge expense hurt your cash flow too much?
And if you can’t afford it now, will saving up to buy it later mean lost profits, since you could have used that equipment in the meantime by financing it?
Essentially, you need to figure out whether the opportunity cost of waiting and saving outweighs the interest payments you’d make to have that equipment right now.
There’s no right or wrong answer—but if you plan your financials well, the right equipment should bring in more than those interest payments are costing you.