Many business owners struggle with knowing when and how to buy new equipment. Some prefer to wait until total equipment failure before investing in new equipment. Others want the latest innovations whenever they come out. The rest fall somewhere in between. But overall, one principle remains true: Updating your equipment is essential for staying competitive.

Unfortunately, new equipment is often expensive, and business owners may not have the cash flow to purchase outright. Equipment loans for small businesses can be helpful in this situation, as they provide financing for a wide range of equipment and supplies.

The Basics of Equipment Loans for Small Businesses

An equipment loan is a type of financing that lets you purchase equipment without paying for it all upfront. Unlike some other types of loans that are unsecured, equipment loans use the equipment as collateral for the loan. This can make them easier to get than other types of loans.

Benefits of Upgrading to New Equipment

New equipment can offer business benefits that make it worth upgrading. Let’s review some of them.

• Maintain a Competitive Edge: The widespread availability of equipment loans for small businesses make new equipment more accessible, not just for you but also for your competitors. Even if you aren’t upgrading your equipment, chances are, other companies in your market are. To keep from falling behind, you’ll need to make regular upgrades.
• Increase Efficiency: New equipment can help you reduce downtime through fewer disruptions in your operations. It can also streamline and improve your operations through increased output. For example, if you own a medical practice, new tools can increase automation, letting you see more patients in a shorter period. This can result in increased revenue and recoup any money spent on new equipment.
• Reduce Costs: While new equipment may cost more upfront, over the long haul, it can reduce costs. For example, purchasing an electric vehicle may save on fuel and repair costs.

• Enhance Safety: Older equipment often becomes less safe and stable. This can increase the risk of injuries to your business. This is less of a concern with new equipment.

What Equipment Loans Can Be Used For

Equipment loans for small businesses can be used for a wide range of purchases, including:

• Office furniture and equipment, including IT equipment, computers, printers, software, etc.
• Medical office equipment, including exam tables, waiting room furniture, imaging machines, diagnostic equipment, dental equipment, chiropractic equipment, physical therapy machines, and more
• Retail equipment, including shelving, mannequins, delivery trucks, mirrors, etc.
• Hospitality business equipment, including hotel furniture, restaurant furniture, kitchen equipment, dining room furniture, appliances, and more
• Landscaping business equipment
• Construction equipment including bulldozers, excavators, trenchers, etc.
• Commercial vehicles

This list is not all-inclusive. There are many other items that a business equipment loan can finance.

Where to Get Small Business Equipment Financing

Equipment loans for small businesses can be obtained through a traditional bank, credit union, or alternative lender.

Traditional bank or credit union

If your business is a startup, getting financing from a bank or credit union may be difficult. These types of lenders have fairly rigorous loan eligibility requirements. Most won’t consider borrowers lacking credit or a bad credit score.

If you have a good credit score, have been in business for at least two years, and can prove that you meet their revenue requirements, banks and credit unions may be more likely to consider funding you. These traditional lenders typically have competitive interest rates, but it can take several weeks or even months from the time you complete the application process and receive funding. As such, if you need your equipment now, there may be better equipment loans for small businesses.

Alternative lenders

Many small business owners today prefer the convenience and ease of getting their business loans with alternative lenders, or online loan providers.

The application process is often more streamlined than you would find at a traditional bank or credit union, since you can complete everything online. And while interest rates can be higher with alternative lenders, they can compensate for it with flexible financing solutions.

For example, some online loan providers use multiple factors when qualifying borrowers. Going beyond traditional metrics like credit score, they can get a more accurate perspective on a borrower’s creditworthiness.

Another advantage of working with alternative lenders is fast funding.

Other Types of Equipment Financing for Small Businesses

Small business equipment loans are not the only way to finance equipment purchases. Here are a few alternatives you might consider:

• Personal or business credit cards: For smaller equipment purchases, some small business owners use a personal or business credit card. The advantage to this is that timely payment improves your creditworthiness, helping to get better loan terms for business loans while you’re in business. Since credit cards are considered unsecured financing, you cannot use a credit card for the downpayment on an equipment loan.

• Business line of credit: A business line of credit is similar to a credit card in that you’re approved for a certain credit amount. You can draw from the line of credit to purchase equipment or for other business needs, like working capital. You’re required only to repay the credit you’ve used, and the credit line resets as it’s paid back. Interest is only charged on the credit line you use.
• Term loans: You can get a term loan from a traditional lender or an online loan marketplace. With a term loan, you receive the entire loan funds upfront and repay the loan in equal monthly payments until the loan is paid back in full. A term loan can be a short-term loan or a longer-term loan.
• Revenue-based financing: Revenue-based financing is usually only offered by an alternative lender or online loan marketplace. With this financing solution, your payments are based on the amount of revenue your business is bringing in. Thus, if you go through a slow period, you can preserve more of your business’s cash flow. Revenue-based financing offers one of the more flexible payment options, often allowing you to choose the intervals at which you make payments.

FAQs

What are the best equipment loans for startup businesses?

The best equipment loan is the loan that works for your needs. Some people prefer to shop around and find the loan with the best terms and lowest interest rates. Others find a great deal on a piece of equipment, and look for fast financing because it’s more important to buy fast than it is to find the best rates.

Should I explore equipment leasing over buying?

It depends. If you don’t want to worry about maintaining the equipment, leasing has that advantage. But your total out-of-pocket costs will likely be higher when you lease.

What do I need when applying for commercial equipment loans?

Applying for any type of business financing typically requires a business plan showing how you plan to use the funds, a minimum credit score, and your financial disclosures, including tax returns, profit and loss statements, and balance sheets. With equipment financing, you may also need to prove the value of the equipment being financed.

Is a personal guarantee required for equipment loans for small businesses?

Most of the time, not, because the lender is using the equipment as collateral for the loan. But this may vary between lenders.

Do equipment loans for small businesses offer funds for expanding a business, like opening a second location?

If you are expanding your business or opening another location and need to purchase equipment, you can use an equipment loan for the purchase. But an equipment loan could not be used for other types of expenses.

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