Find the Lowest Rates on Equipment Financing

Equipment financing is a type of business loan that provides capital specifically for the purpose of purchasing new or used equipment—whether vehicles, machinery, or technology. You can access equipment loans equal to up to 100% of the value of the equipment you’re looking to purchase. These loans are then paid back over time, with interest.

Business equipment financing is a form of asset-based financing, in which the equipment itself serves as collateral for the loan. For this reason, equipment financing is often easier to qualify for than other types of small business loans. Along these lines, equipment loans can be great options for startups, or businesses with average or poor credit scores.

If you’re looking for funding to purchase equipment for your business, equipment financing can often offer the most ideal rates and terms.

However, it’s worth breaking down the pros and cons of equipment financing so that you can determine whether or not it’s right for your needs.

Pros:

• Quick funding for equipment purchases: Whereas some other types of business loans (like bank and SBA loans) can take weeks or months to fund, equipment loans are typically considered a very fast form of financing. As long as you have the necessary information about the equipment you’re looking to purchase ahead of time, you can often receive equipment financing in just a few days.
• Equipment itself serves as collateral on the loan: One of the biggest benefits of equipment loans is that they’re self-collateralizing. Therefore, instead of having to put up real estate or other business property as collateral, the equipment itself secures your loan. Additionally, because the equipment itself serves as collateral, you may be able to work with your lender to avoid signing a personal guarantee on the loan.
• Easier to qualify for than other business loans: For this reason, equipment loans are a great option for startups or businesses with bad credit. Overall, because the equipment secures the loan, lenders are often willing to work with businesses with lower qualifications—the self-securing nature of business equipment financing makes it less risky for lenders. Moreover, most equipment lenders report your payment history to business credit bureaus—meaning on-time payments will improve your credit history and make it easier for you to qualify for other loans in the future—which is particularly helpful for newer and bad credit businesses.
• Affordable interest rates: Equipment financing rates typically range from 4% to 40%. Of course, the interest rate you receive will vary—but overall, these rates are generally affordable. If you fall on the lower end of the interest rate range, you’ll receive rates that are akin to bank or SBA loans. Moreover, you may be able to save additional money on the cost of your equipment and your taxes by taking the Section 179 business tax deduction.
• Limited paperwork and fast application process: Business equipment financing is available from both banks and alternative lenders. As you might expect, alternative, online lenders will have the fastest and most streamlined processes—in general, though, applying for equipment financing is a simple and quick process. Again, because lenders aren’t as concerned with your business’s qualifications, you’ll usually see limited documentation requirements, especially in comparison to other types of financing.

Cons:

• Equipment could be obsolete by the time the loan is fully repaid: Perhaps the biggest drawback of business equipment financing is that by the time you’ve repaid the loan and you own your equipment, the equipment may be outdated or obsolete. This is one of the reasons that some business owners opt for equipment leasing instead of financing. In addition, it’s important to note that you don’t actually own the equipment until you’ve paid off the loan.
• May require a down payment: In some cases, you’ll need to put down 10% to 25% of the value of the equipment to access financing. If your business doesn’t have the money required for the down payment, it may be more difficult for you to get equipment financing. Plus, if you can only make the minimum down payment amount, the more likely you are to see higher interest rates.
• Only applicable to businesses that need to purchase equipment: Equipment loans fulfill a very specific need. Therefore, if you need funding for another business purpose, you’ll have to explore your other options.

As we’ve mentioned, equipment financing is a worthwhile option for many startup businesses, as these loans are easier to qualify for in comparison to other types of business loans. Once again, with the equipment serving as collateral on the loan, you don’t necessarily need multiple years in business or excellent financials in order to be able to access equipment financing.

Therefore, if you need to purchase equipment for your startup, you might start by looking into Currency Capital, eLease, or CIT, as none of these lenders have a minimum time in business requirement. Additionally, if you are a startup with at least one year in business, you might also consider Balboa Capital—especially if you have a credit score under 620.

Of course, with any of these lenders, it’s important to remember that even if you qualify, you’re more likely to see higher interest rates in comparison with more established businesses. This being said, the stronger your other business loan requirements are, the more flexibility you’ll have working with the lender to access the most ideal rates and terms as a startup.

If you think one of these top equipment loan options might be right for your business, here’s how to get the financing you need.

Find the equipment you’d like to purchase: With the application process, many lenders will require that you offer an equipment quote, as well as details about the equipment and its condition. Therefore, you’ll want to make sure that you have this step completed from the beginning.

Evaluate your qualifications: To get equipment financing, you’ll typically need a credit score of at least 600, more than $130,000 in annual revenue and two years in business, based on past Fundera customers. However, specific requirements will vary based on the lender and generally be much more flexible compared to other types of loans. Still, the better your qualifications, the more likely you’ll be to access the most ideal rates and terms.

Complete your application: Typically, you’ll be able to complete your equipment loan application online very quickly and easily. Equipment financing usually requires minimal documentation and a streamlined application process, but you can expect to provide some if not all of the following:

• Driver’s license
• Voided business check
• Bank statements
• Credit score
• Business tax returns
• Equipment quote

Generally, online lenders can process and fund business equipment financing applications in just a few days, sometimes faster. If you apply for an equipment loan through a bank, on the other hand, you’ll likely see a slower time to fund.

Of course, before you sign an equipment loan agreement and enter the closing process, you’ll want to compare options from multiple lenders to ensure that you’re getting the best, most affordable deal for your business.