An equipment loan is financing tool that allows small business owners to acquire the equipment and machinery they need to grow their companies when they do not have enough cash. Such loans sometimes require a down payment of between 10% and 30%, with the loan provider financing the rest. In other instances, lenders finance the entire cost of the equipment, usually with a higher cost of financing for the borrower.
Businesses across all industries use equipment loans to finance the purchase of the equipment they need. Some of the categories of companies that can use equipment loans include Construction companies, Farming businesses, Auto body shops, Restaurants, Manufacturers, and Shipping companies. Other categories of businesses that can access equipment loans are Healthcare providers, Breweries, IT agencies, creative agencies.
Factors to consider when choosing an equipment loan
One of the major challenges faced by small business owners in particular is getting the best equipment loans. It is worth noting that there are several factors to consider when choosing an equipment loan. Some of such factors are the lender’s specialty, size of the loan, requirements of the lender, interest rates, speed of funding, and loan terms.
Pros of Equipment Loans
Relatively easy to obtain
Usually fast funding
Drive competitive advantage
Help generate more revenue
Equipment is an asset
Tax incentives
Cons of Equipment Loans
May require significant down payment
More expensive over the long term
Can require credit inquiries, or damage borrower’s credit score
May be penalties for repaying the loan early
There can be issues with repairs
Equipment can become outdated quickly
Alternative Funding Options
There are several financing options available to small businesses that need funds to acquire their equipment. These options include Traditional term loans, Loans from non-bank lenders, Business lines of credit, and Loans from the SBA.
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