Should Your Small Business Get an Equipment Loan?
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.
Up to 100% of equipment value
Expected life of equipment
8 - 30%
As little as 2 days
As it turns out, most businesses can qualify for equipment financing.
How much you qualify forâand the interest rate youâll payâdepends on the value of that equipment, your businessâs 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 whatâs securing their loan as with your borrowing history.
**Based on past Fundera customers.
It takes money to make moneyâevery 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 revenueâ¦
But how can you afford it?
Fortunately, this is a problem lots of the business owners we work with at Fundera face. And itâs one we can help you solve, too.
Hereâs how equipment financing can get you on track to grow your business.
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 carsâand everything in between.
How much you can borrow depends on the type of equipment youâre buying and whether that equipment is new or used, since it actually serves as collateral to secure your loan.
If youâve ever had a car loan, youâre already pretty familiar with the idea:
The price of that equipment dictates the amount and terms of your equipment financing, and you wonât need to put up any extra collateral.
And hereâs a good thing to know:
Most equipment loans are made at fixed interest ratesâusually between 8% and 30%âwith set term lengths, so you can expect the same payment each and every month.
How long you can extend the term of your equipment loan depends on the sort of equipment youâre 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 usefulâ¦
After all, the whole point is that theyâre financing a tangible asset that will give your business value.
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, youâll own that equipment after your loan gets paid off.
On the other hand, with a lease, you only get to use that equipment while youâre paying.
So if you know youâll need that equipment for awhile, equipment financing could be the right move. But if youâre looking for a temporary solution, a lease might make more sense.
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, youâll pay it off in regular installments.
However, youâll be paying more to finance that equipment with an equipment loan than youâd pay if you purchased it outright without financing. The tradeoff is for businesses that canât afford that kind of large expense or donât want to deplete their cash with such a large purchase.
Letâs say you have a piece of equipment youâd like to purchase that costs $10,000.
An equipment financing lender offers to upfront you the cash to purchase that equipment, but theyâll 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.
At this point, youâd have to take a look at your businessâs 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 canât 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 youâd make to have that equipment right now.
Thereâs no right or wrong answerâbut if you plan your financials well, the right equipment should bring in more than those interest payments are costing you.