Small Business Equipment Financing Guide

equipment financing for small business

Are you in need of financing for business equipment? Look no further.

It's difficult for many people to start businesses because they have to invest a lot to get equipment, facilities, and permits. While many people think that you have to pay out of pocket to start a business, there are options for you.

While you'll end up having to pay for equipment at the end of the day, equipment financing allows you to get the things you need ahead of time. With the likes of loans and credit cards, you can finance your equipment and pay it off later. 

Read on to learn more about equipment financing and what some options are.

What is Equipment Finance?

Equipment finance is a tool that businesses use to fund the use of expensive equipment without having to pay a lump sum upfront. This is often used by companies that need to use larger equipment or companies that don't often use a certain tool.

Aside from equipment lending, businesses use a variety of finance options to purchase equipment and pay them off over a period. These typically involve businesses borrowing money directly from a lender.

Term Loans

Term loans are one of the most common methods used when financing business equipment. These allow businesses to take out large lump sums of money and repay it over a period.

Term loans have variable interest rates, but they have a fixed repayment schedule that lets businesses plan their finances. Aside from using the money for equipment, these loans can be used for things like paying employees, purchasing products, etc.

These loans aren't usually used for those that are seeking heavy equipment financing because they often have to borrow limits up to $500k. While these loans can provide quick funding, their interest rates are quick to rise the longer the loan is active.

Equipment Loans

Equipment loans are designed specifically for businesses to purchase equipment. These loans are provided by most institutions, so you must browse for the best interest rates.

Unlike term loans, equipment loans can be used for startup businesses or those that need an expensive piece of equipment. Equipment loans tend to have borrow limits of up to $5 million, and you can find interest rates for around 8%.

Equipment loans and term loans provide no collateral to the lender besides the equipment. Should you neglect to pay these loans, the lender has the right to sell the equipment that you purchased to get their money back.

SBA Loans

SBA loans come directly from the Small Business Administration, which is an organization that tries to support startup businesses and entrepreneurs. The SBA partners with credit institutions to provide loans up to $5 million.

SBA loans tend to have longer repayments terms of up to 10 years, so it's much easier to pay off debt than a term loan or equipment loan. To be eligible for an SBA loan, you need to prove that you have a legitimate U.S.-based business.

Lenders will also set their requirements for the loans. They'll often look at how long your business has been active, your credit scores, tax returns, and bank statements. SBA loans typically have slow processing times and funding isn't provided for several months.

Credit Cards

Credit cards may be the best option for those that aren't able to get business equipment financing through other means. While credit cards can have high interest rates, they can be used several times.

Whenever you get a credit card, you'll receive a line of credit that gives you a limit of how much you can spend. When you pay back the money that you've borrowed, you can start using the card again.

Many small business owners use credit cards when they're buying basic tools for their businesses because they usually don't cost much. When it comes to buying machinery or other expensive equipment, you'll have a hard time using a credit card.

Credit cards can have large lines of credit if you pay a deposit. For example, you'll be able to borrow up to $10,000 if you make a down payment of $10,000. You'll then be able to borrow up to that amount repeatedly without down payments.

Personal Loans

Personal loans are loans that you can take out for any reason, even if you don't own a business. Unlike term loans and SBA loans where the lenders can use the equipment as collateral, personal loans don't provide the lender with anything.

Because the lender doesn't receive any collateral, personal loans typically have high interest rates and can't be negotiated. However, lenders will work with you to come up with a repayment plan that won't suffocate you while you're trying to grow your business.

You can get a personal loan at most banks and credit unions, but ensure that you don't get what's called a "payday loan." Payday loans have short payment periods and high interest rates, making them a poor option if you need expensive equipment.

Use These Equipment Financing Methods Today

If you have recently started a business or need equipment, you don't have to worry about hefty upfront costs. With equipment financing, you'll be able to get the equipment that you need to work while being able to pay it off over time.

You can use a variety of loans to purchase equipment such as term loans, SBA loans, equipment loans, and personal loans. Each of these come with different borrow limits, interest rates, and payment periods. You can also use a credit card for your equipment, which is more convenient than applying for a loan.

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