Business equipment is often one of the most expensive investments for a business owner. Apart from real estate, equipment is one of the hardest expenses to plan for. Fortunately, business equipment financing has made these purchases easier to cover.
In this guide, we will go over the options you can use to finance your next equipment purpose.
What Is Business Equipment Financing?
Business equipment financing is how you finance an equipment purchase or repair. But business equipment loans work a bit differently than other loans. The main difference is the collateral you use to get the funding you need.
Why Use Business Equipment Financing?
Business equipment financing can be used for both purchases and repairs. They offer several benefits that make the financing process easier:
- Less paperwork
- Simple collateral requirements
- Often bad credit-friendly
- Tax benefits
How Business Equipment Loans Work
Like car loans, business equipment loans use the purchase you finance as collateral. Because your purchased equipment is used as collateral, no other collateral is needed. This is a less risky option from the lender’s point of view as well. So, you should be able to get better rates than you can with other business loans.
Save For Other Expenses
You can use business equipment loans to cover your largest expenses. This allows you to save your business from soaking up the entire cost of expensive equipment purchases and repairs up front.
Factors To Keep In Mind
Business equipment loans usually require down payments. These down payments are usually about 20%, so your purchase will still take a toll on your working capital.
Keep in mind that business equipment loans are not risk-free. All loans carry risks, but not all of them require collateral. Your collateral with a business equipment loan can cost you if you fail to make payments. You can end up losing money from costly equipment purchases and repairs. As always, exercise caution and make sure you have a strong plan to pay back your loan.
What Are The Next Best Business Equipment Financing Options?
Finding business equipment financing online can be a bit tricky. But you can often use a non-specific business loan to pay for equipment. These loans offer different terms and rates than specified equipment loans. But they’re just as usable.
Business Term Loans
A business term loan is a more open-ended option than a business equipment loan. You can use a business term loan for almost any business purpose. Also, if your credit score is high, you can avoid collateral payments altogether.
A business term loan is a simple lump sum of cash paid back in installments. They are in most ways identical to business equipment loans, they’re just less specific in their intention.
Another benefit of choosing a business term loan is that they’re easier to find. It’s incredibly easy to get a business term loan. You can find many online and you can be approved for one in less than a day in many cases.
Business Lines Of Credit
Business lines of credit are great tools for financing ongoing expenses. If you need to finance multiple equipment purposes or repairs, a line of credit can be the answer.
A business line of credit can give you ongoing access to credit. If you want to spread your equipment purchases out, you can take a business line of credit and draw funds every few weeks or months to pay for new equipment.
Fortunately, you can also get business lines of credit very quickly. Some alternative lenders can provide them in a matter of days. Approval for a business line of credit can take minutes, in some cases.
Small Business Administration Loans
The Small Business Administration (SBA) doesn’t offer loans. They just set the standards that business lenders offering SBA loans must follow.
For equipment purchases, you will need to take out an SBA 7(a) loan. These loans offer low interest rates and long repayment terms. Repayment terms for SBA 7(a) equipment loans are 10 years.
Finding SBA Loans
Most US cities are home to at least a few SBA lenders. If you look online, you can find many direct lenders or lending marketplaces that offer the same great rates and terms for SBA loans. Try checking out these lenders and marketplaces for an SBA loan:
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Due Diligence In Business Equipment Financing
No matter how you choose to finance your business equipment purchases, you will need to do your due diligence.
First, remember that typical equipment financing comes at a risk. Because you are using your purchase as collateral, make sure you can pay the loan back. Otherwise, you risk losing your valuable equipment.
Lastly, make sure you are working with a reputable lender. Check any terms you’re offered carefully and shop around to get a good deal.
