Equipment Financing: Where to Find it In 2020
 

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What is equipment financing?

Equipment financing is a commercial loan that you can take out to purchase equipment for your business, allowing you to access the assets you need without buying them outright. Since the equipment itself usually secures the loan, if you default on payment, the financing company would take and sell the equipment to recoup losses. On average, equipment loans last three to seven years

Business owners can use equipment loans to finance assets such as commercial ovens, desks, shelves and displays, vehicles and manufacturing equipment. You’d be required to make period repayments consisting of interest and principle for a fixed amount of time. Once you pay off the loan, you’d gain full ownership of the equipment.

Some lenders may offer new or used equipment financing. A lender typically extends the majority of the capital needed (usually at least 80%), requiring your business to put down the remainder and pay the company back with interest in monthly increments.

Equipment loans vs. equipment leases

If you’re not interested in owning a piece of equipment, you could opt for an equipment lease rather than an equipment loan. A lease would require you to make payments to rent the equipment. When the lease term ends, you could return the equipment or renew your agreement, though some lenders may give you an option to purchase the equipment at a steep discount.

Small business owners who lease equipment typically don’t have to make a down payment. Also, applicants with bad credit generally have a better shot at being approved for an equipment lease, as equipment leases may have more lenient eligibility requirements than loans.

Which option is right for my business?

An equipment loan may be a good fit if:
• You have strong personal and business credit.
• You plan to use the equipment for a long time.
• You have cash for a down payment.

An equipment lease may be the right choice if:
• You do not have a robust credit history.
• The equipment does not have a long lifespan for usage.
• You do not have cash to provide a down payment, or you’d prefer not to pay upfront.

Leases tend to be the costlier option in the long run because you don’t own the equipment. Consider whether you’d rather pay to rent or own your business assets when making your decision.

Where to find equipment financing

Equipment finance companies include specialized online lenders that usually have flexible requirements and fast time-to-funding. You can apply for equipment financing from traditional banks, too, although those institutions generally have stricter requirements but more favorable rates and terms than online lenders.

Here are a few equipment finance companies to help you get started in your search for equipment financing.

Lender Loan amount Interest rate Minimum personal credit score Time to funding after approval
Currency Up to $500,000 Starting at 6.49% 600 2 business days
CIT Bank $500,000 to $1 million Starting at 5.49% 620 1 business day
Funding Circle $25,000 to $500,000 4.99% to 24.99% 620 5 business days
Crest Capital $5,000 to $500,000 Not listed 650 Varies

Equipment financing: Pros and cons

When deciding whether an equipment loan would be the right business funding solution for you, keep these potential advantages and disadvantages in mind:

Pros
  • The equipment acts as collateral, which may result in a low interest rate.
  • Monthly payment schedules can be manageable for small businesses.
  • New or startup businesses could rely on equipment financing when first opening.
Cons
  • Business owners typically need good credit to qualify.
  • Lenders would likely require a down payment.
  • The loan term may exceed the lifespan of the equipment, and you’d have to repay the loan in full even if you need to replace the equipment.

How to get equipment financing

Before applying for an equipment loan from an online or traditional lender, you should get your business paperwork in order. First, make sure you have a thorough business plan that explains why you need the equipment and how it will help you expand your business. Determine exactly what kind of loan terms will work for you, including how much you are prepared to pay on a monthly basis.

Check both your business personal credit score. Lenders will assess your credit, and it would be beneficial to have the best score possible. Be sure to check for errors if your score is not what you were expecting. If your credit score is not where it should be, it might make sense to hold off on pursuing a loan until you can do some credit repair work. Additionally, you may need to meet minimum revenue and time in business requirements. The specific requirements vary from lender to lender.

When you’ve found an option that seems to meet your needs, be sure to read the fine print before signing a loan agreement. You might also want to have a trusted financial advisor review it as well. After signing, your loan may be funded within a few days if you’ve chosen an online lender. Loans from traditional sources may take a bit longer to fund.

Paperwork you may need to compile:

  • Proof of ownership (business license, EIN number or statement of incorporation)
  • Bank statements
  • Recent tax returns
  • Personal resumé
  • Business plan
  • Credit report

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