Small Business Loans for Equipment: The Funding You Need to Take Your Business to the Next Level
Written by
Josephine Nesbit
Edited by
Nicholas Morine
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Can’t afford to pay for business equipment? There’s a loan for that.
Equipment financing, or an equipment loan, allows small business owners to finance up to 100% of the cost of equipment necessary to operate and scale their business. According to Funding Circle, a common misconception is that this only applies to heavy machinery, but “equipment” applies to various industries. This type of financing can be used on anything from office supplies, restaurant equipment, delivery vehicles, forklifts and more.
Equipment loans vary from lender to lender, but interest rates range from 5% to 30%, per Funding Circle, and requirements regarding down payment, credit score and business financials can vary. The average repayment term for a non-SBA (federal Small Business Administration) equipment loan is one to five years, but some lenders may offer a 10-year term.
Most businesses qualify for equipment financing loans, added Funding Circle, but the amount you borrow and the interest rate depends on the equipment’s price, your personal and business credit score and your business finances. Lenders are also more flexible with this financing option as the equipment acts as collateral for the loan.
If an equipment loan isn’t right for you, another option is to lease the equipment. This is similar to how you would lease a vehicle or an apartment. While leasing equipment doesn’t require any money down, Funding Circle reported that it’s much more expensive than purchasing the equipment outright with an equipment loan. At the end of the lease, you can choose to return the equipment, renew the lease or purchase it for fair market value.
There are options for obtaining equipment loans ranging from traditional bank lenders to small online lenders. Traditional bank lenders have stricter underwriting requirements, per Value Penguin, but often have better rates and terms. On the other hand, online lenders can be more flexible, but rates and terms may not be as good as those from a nationwide bank.
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