New Equipment Financing

What Is Equipment Financing?

Equipment financing is a sort of business financing explicitly designed for the purchase of commercial equipment. The phrase “equipment” can refer to whatever a company employs in its activities, including furniture, computers, ovens, vehicles, medical equipment, construction equipment, and other highly specialized items, to name a few examples.

Pros and Cons of Equipment Financing

Many types of company loans require using a valued item as collateral to secure the loan. However, when it comes to equipment loans, the equipment itself serves as security. Thus, the borrower usually doesn’t have to supply anything else. This is a significant benefit for small businesses that may not be able to get the types of assets that lenders generally require as securi

Lenders can be more lenient when approving applications because equipment financing has built-in collateral. Your business credit score is less of a consideration, and lenders are more likely to support younger businesses that lack the years of expertise that traditional business loans require. Equipment financing involves far less documentation than a conventional company loan; therefore, the application and approval processes are usually quick.

Equipment finance often covers a large portion of the entire cost of the machine. This enables business owners to obtain the equipment they require without significant upfront costs. Many business owners who could afford to pay for their equipment outright prefer to employ equipment financing since it allows them to put that money to better use.

Compared to a traditional business loan, equipment financing terms are frequently more flexible. For example, depending on the projected usable life of the equipment, equipment financing terms might range from a few months to over a decade.

Equipment financing isn’t appropriate for all types of machinery. Equipment leasing may be a preferable option if the equipment you’re interested in will become obsolete or worn out by the time it’s paid off, as it will protect you from being trapped with outdated equipment. 

Types of Equipment Financing

Equipment purchases can be funded using a variety of loans, including merchant cash advances, invoice finance, and microloans. If you own a small business, an SBA loan is another option you should examine. 7(a) loans, which the Small Business Administration backs, can be used for several business needs, including equipment purchases. Another sort of SBA loan, known as a CDC/504 loan, may interest businesses wishing to make significant investments or purchase costly equipment items.

Although “equipment financing” and “equipment leasing” are sometimes used interchangeably, they are not synonymous. Equipment financing allows you to purchase the equipment at the end of the term. In contrast, equipment leasing allows you to utilize the equipment for a specified period of time in exchange for monthly payments. This makes leasing a more cost-effective option for equipment that you only need for a short period of time or that will be outmoded by the time it’s paid off. Financing for equipment critical to your long-term business operations is a superior option.

Applying for Equipment Financing

Although equipment loans are more accessible to many firms than standard business loans, lenders will still want to see that your company is profitable and that your new equipment will benefit your company in the long run. Therefore, when you apply, you will be requested to provide information such as:

• Past bank statements and business tax returns
• Your resume and resumes for your partners and other essential employees
• A copy of your driver’s license or other government-issued identification
• P&L statements
• Your business license or certification