Who Qualifies for Equipment Financing?
As it turns out, most businesses can qualify for equipment financing loans.
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. So, if you’re planning on investing in a high-value (and value-retaining) piece of equipment with your small business equipment loan, then equipment lenders might be willing to work with you, even if your finances aren’t pristine.
See If You QualifyMost customers who were approved had
**Based on past Fundera customers
Over $130K
630
Over 2 years
How Do You Apply for Equipment Financing?
A business equipment loan application can be a simple process, depending on the equipment lender you’re working with. You’ll likely need to provide your credit score and prove the financial health of your business with tax returns and bank statements.
On top of this, equipment lenders will typically ask for information about the equipment you’re purchasing with the financing. That’s why most equipment financing applications will require an equipment quote, or equivalent documentation of the equipment cost.
Documents you need:
- Driver's License
- Voided Business Check
- Bank Statements
- Credit Score
- Business Tax Returns
- Equipment Quote
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 rev up your business growth and start bringing in more revenue… But how can you afford it?
Fortunately, this is a problem that we’re able to help a lot of small businesses solve.
Here’s how equipment financing loans can get you on track to grow your business.
Equipment Financing: The Fundamentals
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—especially when you don’t have cash on hand to purchase the piece of equipment upfront.
You can use the proceeds of business equipment financing loans to purchase almost any kind of business equipment, from computers to cars—and everything in between.
How much you can borrow through a business equipment loan depends on the type of equipment you’re buying and whether that equipment is new or used, since this very equipment ultimately serves as collateral to secure your loan.
If you’ve ever had a car loan, you’re already pretty familiar with the structure of a business equipment loan:
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.
This is because a business equipment loan is a self-secured loan, which means that the equipment itself acts as collateral for the loan. The self-collateralized nature of equipment financing can make these loans slightly easier for some business owners to qualify for.
Why? Because the equipment provides security for the lender. If you can’t afford to pay back your business equipment loan, the lender can simply seize the piece of equipment and liquidize it for cash to recoup their losses.
And here’s another good thing to know:
Most small business 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 this equipment’s anticipated lifetime.
Understandably, not too many lenders want to extend their equipment loan repayment 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—your equipment—on the basis that it will be worth something should they have to liquidate.
Some equipment lenders will set terms for the expected lifetime of the equipment. But most lenders will set a maximum repayment term of 10 years on a business equipment loan.
Equipment Financing vs. Equipment Leasing: What’s the Difference?
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 definite advantages to leasing, but with a small business equipment loan, you’ll own that equipment after your loan gets paid off.
On the other hand, with a lease, your business will only be able to use that equipment while you’re paying for it.
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 more temporary solution, leasing equipment 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, just like any other term loan.
However, because of the interest that equipment financing loans inevitably come with, you’ll be paying more total money with an equipment loan than you’d pay if you purchased the equipment outright without financing. The tradeoff is worth it for businesses that can’t afford a large, upfront expense or don’t want to deplete their cash with such a huge one-off purchase.
An Example of the Pricing on Equipment Financing
Let’s say you have a piece of equipment you’d like to purchase that costs $10K.
An equipment financing lender offers to front 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, your business equipment loans will make it so that your $10K piece of equipment will actually cost you $11,957.15, with a monthly payment of $332.14.
Some Questions to Ask Yourself About the Cost
At this point, to decide whether or not a business equipment loan is right for you, you’ll have to take a look at your business’s finances and ask yourself:
Can you save some money by shelling out $10K 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 with a business equipment loan?
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 with equipment financing.
There’s no right or wrong answer—but if you plan your finances well, the right piece of equipment should bring in more than those equipment financing loan interest payments are costing you.
