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Equipment loans give you a chance to invest in the long-term value of your assets by borrowing against them. These types of loans are secured by the equipment itself, so they’re less risky than other forms of financing because if something does happen to the asset, you still have collateral.
Equipment loans are a great way to finance the purchase of equipment. They work by leasing the equipment and then paying it back over time. The loan requirements vary depending on the company, but they typically require a down payment as well as payments for the duration of the lease.
An equipment loan is a kind of fixed-rate financing used to buy automobiles and heavy equipment from a lender. The loan is secured by the collateral that was acquired. Many various types of lenders, including banks and unconventional lenders, may provide equipment loans. Lenders give low rates on equipment loans, ranging from 6% to 9%, because of the good collateral. Furthermore, origination costs might be as high as 3%.
Providers of Equipment Loans
When you need an equipment loan, here are six companies to consider.
Smarter Finance
Smarter Finance in the United States is an excellent choice for startups looking for equipment financing. In addition to being open to working with startups, they offer flexible lending options and competitive rates. Startup businesses that can put at least 5% down on the purchase of their equipment and that have a personal credit score of at least 600 should choose Smarter Finance.
BlueVine
While BlueVine does not provide direct equipment financing, its line of credit product is an excellent option for obtaining heavy equipment finance. A line of credit is available to businesses with at least $120,000 in annual sales, at least 6 months in operation, and a personal credit score of at least 600. In addition, BlueVine provides an excellent invoice factoring service that may aid your company’s cash flow.
Crest Capital
Crest Capital is another alternative lender. Crest Capital offers competitive interest rates, whether financing new or used equipment. It also provides equipment loans and leasing for equipment manufacturers as an “in-house” lender. Companies with at least 2 years in business and a personal credit score of at least 620 can qualify. Also, no minimum revenue is required, which is a big advantage.
Funding from the federal government
Funding from the federal government is a good choice for businesses with low credit scores. Scores as low as 500 may be approved if a company is otherwise well-qualified. Funding from the federal government can fund a loan in one business day, making it one of our top choices for best same-day business loans and best easy business loans. Minimum annual revenue is higher than some of the other options on this list, as businesses must earn at least $150,000 in annual revenue to qualify. Borrowers with poor credit may also end up with high annual percentage rates.
Compass SMB
Compass SMB offers some of the largest equipment loans of any of the providers on this list, with loans of up to $5 million. Terms are available from 1 to 5 years, with rates from 5.25% to 24.99%. Funding is promised in less than 30 days on all loans, but loans of less than $200,000 can be closed within 24 hours.
Wells Fargo & Company
Wells Fargo & Company offers financing and refinancing of equipment as a traditional bank lender, in addition to other lending products, including Small Business Administration (SBA) loans, business credit cards, credit lines, and equipment financing. The company is phasing out personal lines of credit. Wells Fargo & Company is a good choice for businesses wanting to secure a loan through a traditional lender or requiring other banking products in addition to an equipment loan. Terms run from 12 to 84 months on equipment loans. Wells Fargo & Company also offers equipment lines of credit as an option.
The Process of Getting a Loan for Equipment
Banks and equipment finance businesses provide loans to cover the acquisition of significant pieces of equipment. A corporation may save money in the near term by taking out a loan to buy equipment and spreading payments out over time. Furthermore, the borrower might acquire higher interest rates by utilizing the bought equipment as security since banks consider these loans to be a lesser risk.
Equipment loans are often used to buy equipment that has a long life expectancy, such as:
- Semi-trucks, box trucks, and vans are examples of commercial vehicles.
- Farm equipment, such as tractors, and manufacturing equipment, such as plate rolling and computer numerically controlled (CNC) machines, as well as construction equipment, are examples of heavy machinery.
- Medical equipment, such as X-rays and diagnostic devices, are examples of specialized equipment.
- Other equipment includes ovens and ranges for restaurants, as well as printers and computer servers for professional offices.
Equipment Loan Rates & Terms
Interest rates for well-qualified borrowers vary from 6% to 9%, while rates for customers with bad credit scores might reach 30%. Most equipment loans last one to four years, however depending on the nature and cost of the equipment funded, some might last up to ten years.
Qualifications for an Equipment Loan
While each bank and the financial institution will have its own set of requirements for obtaining an equipment loan, applicants should expect to fulfill certain common parameters. Loan amounts generally vary from $10,000 to $500,000, with interest rates ranging from 6% to 9% and durations ranging from two to seven years. Borrowers should budget for a down payment of 5% to 20% of the purchasing price. Lenders normally need a credit score of at least 600, as well as security for the equipment being acquired.
Advice on Getting a Loan for Equipment
1. Recognize the Documentation Requirements for an Equipment Loan
There will be significantly less paperwork if a company applies for a normal equipment loan than if it applies for a specialty loan, such as an SBA loan. At the time of application, lenders will ask for any or all of the following documents:
- Equipment invoice: A estimate for the equipment, as well as any extra soft charges, is requested.
- Bank statements: Up to three months’ worth of bank statements are required to demonstrate the cash flow of the firm.
- Lenders will require tax returns for the previous one to three years.
- Financial documents: In addition to assets and obligations, a financial statement detailing earnings and losses is necessary.
- Additional documents, such as business licenses, may be needed.
2. Be aware of your equipment’s additional costs.
There will be extra expenditures associated with the new equipment, such as insurance, maintenance, labor, and storage, in addition to the monthly payment. Here’s how those charges might affect your monthly budget:
- Insurance: Some items need the purchase of supplementary insurance or the addition of additional charges to an existing policy.
- Maintenance: This is the expense of keeping the equipment in good working order and covering typical wear and tear.
- Wages: The company may need to engage someone particularly to operate the machinery.
- Additional fees may be incurred if the device requires specialist storage.
3. Understand how the equipment can boost your profits.
While there may be greater costs connected with obtaining new equipment, there should also be financial advantages. Determine how much the new equipment will simplify the company, decrease the time it takes to execute activities or enhance productivity. In the long term, they will add up to actual rewards.
Advantages of a Loan for Equipment
There are various advantages to financing equipment using a loan rather than a line of credit or other forms of alternative financing. The following are some of the advantages:
- Cash flow: By financing the equipment over time, the company avoids having to pay for it all at once.
- Ownership: The company owns the equipment entirely after the loan is paid off.
- Depreciation: Depreciation may be used in conjunction with Section 179, which enables companies to deduct the entire cost of equipment throughout the tax year.
- Amortization: At the conclusion of the loan, there is no balloon payment.
Alternatives to Loans for Equipment
Equipment loans aren’t the sole option for financing. SBA loans and Leasing of Equipment are two options to consider.
SBA Loans
The Small Company Association backs SBA loans, which may be utilized for a variety of business requirements, including equipment purchases. Under typical situations, SBA loans have stricter underwriting standards and a funding period of 24 hours to 30 days.
If a loan is required for anything other than equipment finance, such as inventory, operations, or other working capital, an SBA loan may be an excellent option. Before applying for an SBA loan, be sure you understand the conditions.
Leasing of Equipment
An equipment lease can accomplish the same goal as an equipment loan. Equipment can be financed, and ownership can change hands once the lease is satisfied. However, there are many different types of leases that have different payment structures. Some don’t require the borrower to take ownership of the equipment at the end of the lease.
Which Equipment Financing Option Is Right for You?
Equipment loans are appropriate for businesses who are certain they want to buy the equipment at the conclusion of the loan and want a regular amortization schedule with no balloon payment at the end. Leases provide additional flexibility in terms of payment schedules and possibilities, while SBA loans provide money for purposes other than equipment loans. An equipment loan, on the other hand, is the way to go if a company wishes to take out a loan to acquire equipment with steady monthly payments and no balloon payment at the end.
Conclusion
When it comes to funding the acquisition of equipment, equipment loans are a suitable option for both new and established enterprises. Qualification for these loans is frequently simpler than for other forms of financing since the equipment is utilized as security. As a result, an equipment loan is the greatest option for a firm seeking a clear purchase of equipment with constant payments, no balloon payment at the end, and transfer of ownership upon satisfaction.
