How to Get and Use Equipment Loans: 6 Steps for Buying Business Equipment
When buying or leasing equipment for your business, an equipment loan―or a loan designed specifically for business equipment purchases―can make everything easier. Equipment loans often have lower interest rates and longer repayment terms than other kinds of business loans, which makes them a more affordable financing option for your equipment needs.
But how do you actually get one and use it to buy equipment?
We’ll walk you through the process and point out things you need to think about along the way. Plus, we’ll even point you toward some of our favorite equipment lenders.
Let’s get you some equipment financing.
1. Define the equipment you want to get
Before you ever start looking at specific loans and lenders, you need to know what kind of equipment you’re planning on getting.
For example, do you plan on getting a grain combine for your farm? An industrial mixer for your bakery? Desks for your office? The equipment type you purchase may affect what lenders you can use for your loan (as we’ll discuss in step three). Plus, it will almost definitely affect the size of loan you need. After all, grain combines cost a lot more than particle board desks.
Then you need to decide if you want new or used equipment. Used equipment will likely be cheaper―but it may have less life left.
You should also try to figure out how you want to get your equipment. Do you prefer leasing or financing business equipment? (Equipment leasing often works better for equipment with a shorter lifecycle.) And do you have a specific vendor in mind already, or do you plan on visiting an auction or something?
The more specifics you can nail down, the better. All the details you define now will make it much easier to choose a lender later.
2. Look at your borrower qualifications
Your equipment choices are only one piece of your loan application puzzle. The other important piece? You and your qualifications.
Equipment financing lenders, like any business lenders, will use a few different factors to decide whether or not you should get a loan (a.k.a. your creditworthiness). Pretty much every lender will look at the following:
- Your personal credit score
- Your business’s annual revenue
- Your business’s age
Now, different lenders will set different standards for each of those factors. You might find a lender willing to lend to your two-year-old business that makes $100,000 in revenue, while other lenders only offer loans to three-year-old businesses with $200,000 in revenue.
And some lenders might take even more factors into account. For example, some lenders might check your business credit score. Others will want to know how much money you have for a down payment on your equipment loan.
The equipment you buy serves as collateral for your equipment loan. So in most cases, lenders don’t ask for any additional collateral.
Regardless, understanding your own qualifications will make it much easier to find a lender that will work with you. So go ahead and run those revenue numbers if you need to, or check your personal credit score. Just make sure that before you start sending out applications, you know what you’re bringing to the table.
3. Find an appropriate business lender
Now that you’ve taken a clear look at both your equipment needs and your qualifications, you can start using that information to find a lender who matches your needs.
Plenty of lenders offer equipment loans for businesses. (We’ll show you some of our favorites below.) The trick is finding one that offers financing for the type of equipment you want, the amount of money you need, and to business owners with your qualifications.
So if you need a $500,000 loan to buy used agricultural equipment, you can narrow down your search to lenders who offer that kind of financing. No need to waste your time on lenders with loans up to just $250,000 or who only finance new kitchen equipment. Likewise, if you’ve only been in business for a year, you can immediately cross off any lenders that have long time-in-business requirements.
When you’ve narrowed down your options, you can start to compare them by looking at key factors:
- Interest rates
- Origination fees and other loan fees
- Down payment requirement
- Loan repayment term
- Application response time
- Funding turnaround time
As you compare these factors, you should be able to figure out which lender works best with your business’s timeline, budget, and cash flow.
If you’re having a hard time finding a lender―especially because of your borrower qualifications―you can go with a generic business loan instead of an equipment loan. (Our picks for the best small-business loans can be used on equipment, though they aren’t equipment-specific). Yes, you may end up with higher rates and shorter terms―but that might be preferable to not getting your equipment at all.
Once you’ve found a lender, you’re ready to get your financing.
4. Secure your financing
At this point, you’re ready to finalize your equipment choice and submit your loan application.
Now, the exact order of this step can vary a bit, depending on how your lender works.
Aside from details about your equipment and vendor, most lenders will want to see things like business bank statements, business and personal tax returns, and other financial documents as part of your loan application.
Some lenders (like AgDirect) let you apply and get approved before you select your equipment. That lets you, say, go to an auction to purchase your new equipment.
Other lenders (like Crest Capital) expect you to find your vendor and equipment before you apply. In fact, you’ll often have to include information about the exact piece of equipment and the seller.
So be flexible here. You may want to check with your lender-to-be to make sure you’re taking care of things in the right order. But either way, by the end of the step you should have your application in. And with any luck, you’ll get approved for your equipment loan.
5. Make your purchase
Assuming you got approved for your equipment financing, you’re ready to finalize your purchase.
With most equipment loans, your lender will send money directly to your vendor. You won’t have to worry about that part. (Convenient, no?)
Note, though, that if you’re using a generic business loan, funding will likely go right to your business bank account. In that case, you’ll need to pay your vendor yourself.
Once your seller gets their funds, you should get your equipment. But hang on―there’s one more step to think about.
6. Repay your loan
Now that you have an equipment loan, you’ll end up paying for your equipment for quite some time (years, in most cases). And remember, you’ll have to repay your loan regardless of what happens to your equipment.
That means you need to take good care of equipment. After all, you don’t want to end up making loan payments on a broken piece of junk.
Speaking of payments, make sure you always make your loan payments on time. That will help improve your credit score. So next time you need to apply for business equipment financing, you can qualify for even better rates.
Lowest listed rate
Required annual revenue
Get a loan
|Lendio||$5,000/$5 million||7.5%||$50,000||Apply Now|
|Crest Capital||Up to $1 million||Unlisted||N/A||Apply Now|
|Balboa Capital||Up to $500,000||Unlisted||$100,000||Apply Now|
|Bank of America||$25,000/$1 million||3%||$250,000||Apply Now|
|OnDeck||Up to $500,000||Unlisted||$100,000||Apply Now|
|U.S. Bank||Up to $1 million||Unlisted||N/A||Apply Now|
Data effective 7/5/22. At publishing time, amounts, rates, and requirements are current but are subject to change. Offers may not be available in all areas.
Equipment loans can help you afford expensive equipment to meet your business needs. Luckily, getting an equipment loan doesn’t have to be a drawn-out, complicated process.
The steps above can help you get through the funding process quickly―meaning you can get the right equipment in no time.
Enjoy your new equipment!
Equipment loan FAQ
What interest rate can I get on a small-business equipment loan?
Interest rates on equipment loans will vary from lender to lender, and your specific interest rate will depend on your loan size and your qualifications. But generally speaking, equipment loans have fairly low, competitive rates, often starting between 5% and 10%.
How long are equipment loan repayment terms?
As with interest rates, loan terms vary between lenders. That said, loan terms between two and six years are common.
Can I get a business equipment loan with bad credit?
You may be able to find some equipment lenders willing to accept a low credit score, but most require a decent credit score (usually in the 600s).
You may be better off getting a business loan for bad credit instead and using that to finance your equipment purchase.
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