Equipment financing is a type of business loan that provides capital specifically for the purpose of purchasing new or used equipment—whether vehicles, machinery, or technology. You can access equipment loans equal to up to 100% of the value of the equipment you’re looking to purchase. These loans are then paid back over time, with interest.
Business equipment financing is a form of asset-based financing, in which the equipment itself serves as collateral for the loan. For this reason, equipment financing is often easier to qualify for than other types of small business loans. Along these lines, equipment loans can be great options for startups, or businesses with average or poor credit scores.
Best for: Fast access to long-term equipment loans.
Although Balboa Capital offers a few types of funding, they’re best-known for their equipment financing. Balboa can provide fast, long-term equipment financing with competitive rates. Plus, Balboa has flexible qualification requirements and a simple application process. Equipment financing from Balboa is a great option for businesses looking to purchase a piece of equipment—especially if you want to avoid signing a personal guarantee.
Equipment financing works similarly to a business term loan. You receive funding to purchase new or used business equipment and pay it back with fixed payments over a set period of time.
You can usually borrow up to 100% of the value of the equipment, but the amount may vary depending on the type and condition of the equipment, as well as the lender and your qualifications as a business.
Business equipment financing is a type of asset-based financing—meaning the equipment itself is used to back, or secure, the loan. Generally, this means you won’t have to put up additional collateral and you may be able to avoid signing a personal guarantee.
You may, however, be required to provide a down payment of 10% to 25% of the equipment you’re financing. The larger a down payment you can provide, the lower the interest rates you’re likely to receive. Overall, equipment financing rates typically range from 4% to 40%, based on the lender, your business’s qualifications, and the equipment you’re purchasing.
Repayment terms on equipment financing are usually five to six years, although some lenders may offer longer terms, up to 10 years. Additionally, some lenders may base your repayment terms on the anticipated life of the equipment—that way, if you default on the loan and they have to seize the equipment and liquidate it, they’ll still be able to recover their losses.
Lenders may also offer equipment leasing. Although there are some nuanced differences between equipment financing and equipment leasing, the main difference is that with an equipment loan you own the equipment at the end of your repayment period.
With equipment leasing, on the other hand, you have the option to purchase the equipment at the end of the term, or enter into a new lease for the equipment you need—similar to leasing a car.
Generally, equipment leasing is more expensive than equipment financing in the long run. Refer to our equipment leasing vs. financing guide to learn more about the differences between these options.
Now that we have a basic sense of how equipment financing works, let’s walk through an example.
Let’s say you need to purchase a commercial oven for your restaurant—the oven costs $10,000.
You find a lender that’s willing to offer you an equipment loan for the full price of the equipment ($10,000). The lender will charge a 12% interest rate over a three-year term with monthly repayments.
With this setup, you’ll pay back the capital you’ve borrowed during the three-year term with monthly payments of $332.14 (assuming there are no other loan fees). Overall, this means you’ll be paying $11,957.15 for a $10,000 piece of equipment and the actual cost of your equipment loan is $1,957.15.
Although this may seem like a sizable amount to pay based on the value of the equipment, the benefit of business equipment financing (like most debt financing) is that you can pay for this large purchase over three years and don’t have to take the time to save $10,000 to purchase the oven you need right now.
This being said, it’s always important to understand the true cost of your financing before agreeing to an equipment (or any other type) of loan.
If you’re looking for funding to purchase equipment for your business, equipment financing can often offer the most ideal rates and terms.
However, it’s worth breaking down the pros and cons of equipment financing so that you can determine whether or not it’s right for your needs.
Equipment loans are available from both banks and online lenders—so you’ll have a range of different options to choose from to find the right financing for your business.
With this in mind, you might start your search with some of the top equipment financing companies below:
|FINANCING COMPANY||FUNDING AMOUNT||INTEREST RATES AND TERMS||SPEED||HOW TO QUALIFY||BEST FOR|
Up to $250,000
Starting at around 10%; up to five years
As fast as the same day
“Decent” credit score; at least one year in business; $100,000 annual revenue
Larger funding amounts, faster funding than a bank
Currency Finance (formerly Currency Capital)
Up to $500,000
Start as low as 6%; Up to six years
As fast as one day
620 minimum credit score; $120,000 annual revenue
Equipment loans for startups, fast funding for larger equipment purchases
Up to $1 million
As low as 5%; two to seven years
As fast as one day
650 minimum credit score; at least two years in business
Equipment loans for highly qualified borrowers; low interest rates
CIT (formerly Direct Capital)
Up to $1 million
As low as 4.99%; six months to six years
As fast as the same day
620 minimum credit score
Flexible requirements; equipment loans for startups
$3,000 and up
6% to 35%; two to five years
As fast as one day
No specified minimum requirements
Equipment leasing; financing for startups, businesses with bad credit
As we’ve mentioned, equipment financing is a worthwhile option for many startup businesses, as these loans are easier to qualify for in comparison to other types of business loans. Once again, with the equipment serving as collateral on the loan, you don’t necessarily need multiple years in business or excellent financials in order to be able to access equipment financing.
Therefore, if you need to purchase equipment for your startup, you might start by looking into Currency Capital, eLease, or CIT, as none of these lenders have a minimum time in business requirement. Additionally, if you are a startup with at least one year in business, you might also consider Balboa Capital—especially if you have a credit score under 620.
Of course, with any of these lenders, it’s important to remember that even if you qualify, you’re more likely to see higher interest rates in comparison with more established businesses. This being said, the stronger your other business loan requirements are, the more flexibility you’ll have working with the lender to access the most ideal rates and terms as a startup.
If you think one of these top equipment loan options might be right for your business, here’s how to get the financing you need.
Find the equipment you’d like to purchase: With the application process, many lenders will require that you offer an equipment quote, as well as details about the equipment and its condition. Therefore, you’ll want to make sure that you have this step completed from the beginning.
Evaluate your qualifications: To get equipment financing, you’ll typically need a credit score of at least 600, more than $130,000 in annual revenue and two years in business, based on past Fundera customers. However, specific requirements will vary based on the lender and generally be much more flexible compared to other types of loans. Still, the better your qualifications, the more likely you’ll be to access the most ideal rates and terms.
Complete your application: Typically, you’ll be able to complete your equipment loan application online very quickly and easily. Equipment financing usually requires minimal documentation and a streamlined application process, but you can expect to provide some if not all of the following:
Generally, online lenders can process and fund business equipment financing applications in just a few days, sometimes faster. If you apply for an equipment loan through a bank, on the other hand, you’ll likely see a slower time to fund.
Of course, before you sign an equipment loan agreement and enter the closing process, you’ll want to compare options from multiple lenders to ensure that you’re getting the best, most affordable deal for your business.