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.

Similar to invoice financing, 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.

When it comes down to it, if you’re looking for funding to purchase equipment for your business, there’s no doubt that equipment financing is a great option. In fact, this type of financing can often offer the most ideal rates and terms for equipment-specific funding.

With this in mind, however, an equipment loan will not always be the best solution for every business and situation, and therefore, 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: Generally, equipment financing is much easier to qualify for in comparison to other types of 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: As we mentioned above, 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. As we mentioned above, 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—which is something to keep in mind.
• 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 who need to purchase equipment: Of course, equipment loans are a very specific type of financing that 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, however, 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.

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.

So, if you think one of these top equipment loan options might be right for your business, you may be wondering how to actually get the financing you need.

Find the equipment you’d like to purchase: The first requirement for getting equipment financing is finding and choosing the piece of 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: Next, once you’ve done the necessary research on the equipment you’d like to purchase, you’ll be able to start looking at your options and determining where you’ll be able to qualify.

As shown above, the specific requirements that you’ll need to meet to qualify for business equipment financing will vary based on the lender—generally, however, qualifications (annual revenue, time in business, credit score) will be much more flexible compared to other types of loans. 

With this in mind, though, as we’ve discussed, the better your qualifications, the more likely you’ll be to access the most ideal rates and terms.

Complete your application: Finally, after you’ve evaluated your qualifications and determined which lenders are the best options for your business, you’ll be ready to prepare and submit your loan 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. This being said, however, 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.