As it grows, your business may encounter the need for new equipment. Whether that’s upgrades to a commercial kitchen, retail fixtures for a new location, or an entirely new production line at a factory, small business equipment can be very costly. Fortunately, there are easy ways to finance these purchases.
First, some manufacturers themselves may help you with financing equipment purchases. Generally speaking, you can likely find a better deal elsewhere, however. Small business equipment financing is available from traditional banks, credit unions, and specialty online lenders. It’s a popular, quick, and affordable option for qualified borrowers.
A small business equipment loan is taken out to cover 80% to 100% of the purchase price of new equipment for your business. It is financing for a specific purchase, rather than a traditional business term loan which can be used for various applications. They often require little to no down payment, and have minimal credit requirements, making them a popular choice for many small business owners.
Pros & cons of small business equipment financing
When considering any sort of financing for business needs, it’s helpful to weigh the pros and cons. Below, find some advantages and disadvantages of small business equipment loans – and how they compare to other types of small business loans.
Check out our complete guide to Small Business Loans
Advantages of business equipment loans
Business equipment financing is often available at competitive interest rates. This is largely because these loans are usually structured so that the equipment itself secures the loan, meaning that the bank can repossess the equipment if the borrower defaults. This is similar to how a mortgage is structured.
Compared to many other loan types, business equipment financing is relatively easy to get approved for. Requirements for business revenue, time in business, personal credit score, and business credit history are often lower than similar requirements for different loan styles. Again, this comes down largely to the fact that the loan is secured directly by the equipment. Eligibility rules vary by lender, however.
Many equipment loans can be applied for and funded with a quick turnaround time – sometimes as short as a few business days. There is often less paperwork involved, compared to traditional term loans.
Flexible repayment schedules
Many small business equipment loans can be paid back using monthly payments or even semi-annual payment schedules. In contrast, many term loans require weekly/bi-weekly, or even daily payments.
In many cases, the interest you pay on small business equipment purchases will be tax-deductible. Depreciation of equipment can also carry tax benefits – speak with your tax advisor for details. These same benefits often don’t apply to equipment lease situations – which means it’s often a better deal to finance equipment than it is to enter into an equipment leasing agreement.
Disadvantages of business equipment loans
Unlike business term loans, lines of credit, business credit cards, and other funding options, an equipment loan is just that: Funding for a specific equipment purchase. If you need more flexibility or funds to cover payroll or cash flow gaps, then a traditional term loan is a more versatile option.
Down payment may be required
Some lenders require that you put a substantial down payment towards the cost of the equipment (although some waive this requirement, offering up to 100% financing). For large equipment purchases, a down payment can be a substantial hurdle to clear for many small firms.
What to look for in a loan provider
1. Competitive interest rates
Interest rates can vary substantially, from as low as 6% to as much as 30% or higher. This depends on borrower creditworthiness, the size of the equipment purchase, business history, and other factors. Those with good credit will qualify for the best APRs, while moderate credit borrowers will have higher interest rates. Be sure to compare providers to get the best deal for your situation.
2. Competitive fees
Most loans will have fees attached – application fees, late fees, prepayment penalties, etc. The size of these fees varies substantially, so it’s wise to compare lenders to get the best deal.
3. Available loan terms
Keeping the term of the loan in mind is important, particularly for larger equipment purchases. Depending on the lender, terms are available between a few years and 10 years or more. For specialized SBA loans, some lenders offer terms of up to 25 years.
4. Available loan size
Many lenders offer business equipment financing for up to $2 million – but this varies substantially by lender. If you have a need for a large equipment expenditure, make sure that the lenders you are considering can suit your needs.
5. Good customer service
Most small business loans are a long-term affair, so you’ll want to choose a lender who is easy to work with. You can gauge the reputation and customer service of a company by reading through user reviews.
6. Type of equipment allowed
Some financial institutions have specific rules for the types of equipment they will finance. Some cover only certain industries. Some allow used equipment, while some do not. Alternative lenders online are often more flexible in these rules.
Best small business financing providers for 2021
Entrepreneurs and startup founders have many options when it comes to choosing a lender. The recommendations below are made using a combination of available interest rates, loan terms, requirements, and customer feedback scores.
Biz2Credit is a popular option for small business loans. They offer term loans, working capital loans, equipment financing, and more. Biz2Credit primarily issues small to medium-sized loans and short-term and medium-term loans. They have currently helped more than 20,000 small businesses meet their financial needs. Note that Biz2Credit doesn’t have a specific loan program for equipment financing – however, their standard business term loans present a good option for any business expense, including equipment.
The entire process with Biz2Credit is handled online, and it’s efficient. You can get funded within as little as 72 hours, making this a good option for entrepreneurs who need to jump on an opportunity.
- Business loans from $25,000 to $250,000
- Terms from 12 months to 36 months
- Estimated APR as low as 8.99%
- Typical required credit score of 660
- Typical minimum business history of 18 months, and $250k in annual revenue
- Dedicated support agents can help you choose the right loan type
- Choice of various types of funding (not just equipment loans)
- Rapid funding
- Rapid approval
- Great customer feedback
- Relatively low maximum loan size
- Limited term options (1-3 years)
- No specific equipment financing option
Rapid Finance is an online lender that offers a wide variety of financing solutions, including cash advances, term loans, and more. Like Biz2Credit, Rapid Finance doesn’t have a specific equipment financing product, but their competitive business term loans are a good option.
Loans from Rapid Finance can be as little as $5,000 to as much as $1,000,000. Loan terms are equally flexible, making Rapid Finance a versatile choice. They even offer Small Business Administration loans (SBA loans), which tend to offer very competitive rates. And as the name suggests, Rapid Finance can get you funded quickly and easily.
Rapid Finance details
- Term loans from $5,000 to $1 million
- Terms from 3 months to 60 months
- SBA loans also available
- Offers term loans, bridge loans, SBA loans, asset-based loans, and more
- Requirements vary depending on loan style
- APR varies depending on loan type and credit profile – Rapid Finance generally offers competitive rates
- Wide selection of financing options
- Terms from 3 months to 25 years (varies by loan program)
- Great long-term options, including SBA loans
- Fast funding
- Secured and unsecured loans available
- Some loan products have more stringent requirements
- Upfront rate transparency is limited; you must start the application process to learn more about rates
- No specific equipment financing option
Lendio is a unique financial services provider that helps pair borrowers with loan options from various lenders. It’s a marketplace-like model, where you enter your needs and credit ratings and are presented with a variety of options – from a variety of lenders.
The specific requirements, APRs, and other terms vary depending on the actual lender. However, in general, Lendio is a good option as it lets you quickly and easily compare different available financing solutions. And, unlike many, they provide loans specifically designed for equipment financing.
- Marketplace model pairs you with loan options from various lenders
- Loan amounts from $5,000 to $5 million
- Funding as fast as 24 hours
- Loan terms from 1 to 5 years
- APR as low as 7.5%
- Specific terms vary by lender
- Easily compare different options in one place
- Low requirements
- Options specifically tailored to equipment loans
- Offers equipment financing calculator to estimate costs
- Nationwide network of over 75 lenders
- Rates are higher than average for some borrowers
- Requirements and specific terms are different for each lender
OnDeck is a small business lender with a variety of loan products available. They are a popular option, having funded more than $13 billion worth of business loans. OnDeck also has a great reputation, with stellar ratings on TrustPilot and the Better Business Bureau.
OnDeck has equipment finance agreements (EFAs) available in amounts of up to $500,000. Terms range from 2 to 5 years, with payments required monthly. And they also offer term loans and other financial products, giving business owners choice in their funding solutions.
- Equipment financing loans of up to $500,000
- Terms of 2-5 years
- Also offers term loans of $5,000 to $250,000
- Minimum credit score of 600
- APR varies by credit rating and loan type
- Requires a minimum of 12 months of business history
- Variety of loan types
- Specific equipment financing agreements available
- Loyalty program for repeat customers
- Loans available for those with moderate credit scores
- Simple, transparent pricing
- Limited selection of financial products
- Some loans require a personal guarantee and business lien
- Fixed-fee structure on some loans means that early repayment will not save on interest
Currency is a financial services provider that offers some entrepreneurs a good option for equipment financing. They have relatively low requirements and very competitive rates for qualified borrowers. They also have a high maximum loan amount of $2 million for qualified borrowers.
Currency is actually more of a marketplace than a lender itself. They help match borrowers with lenders through an online marketplace. This allows you to browse options, getting customized quotes from a variety of lenders. Of course, each lender will have its own requirements and application process.
- Equipment loans of up to $2 million
- Requires minimum credit score of 585
- Specific requirements vary by provider
- Estimated APR between 6% and 24%
- Requires only $75,000 in annual revenue
- Low requirements for annual revenue and time in business
- Low credit requirements
- Marketplace model lets you browse multiple options
- Competitive rates for well-qualified borrowers
- Some loans have prepayment penalties
- Some loans require a personal guarantee and/or business lien
Funding Circle is a business loan issuer with a variety of loan products. They have helped serve more than 90,000 small businesses, issuing over $12 billion worth of loans. Their advantages include fast funding and a good selection of different loan products.
There are no equipment-specific loan options through Funding Circle. Instead, the company encourages entrepreneurs to take out standard term loans in order to fund equipment purchases. They have terms spanning from 3 months to 10 years, and even offer specialty SBA loans to some borrowers.
Funding Circle details
- No equipment-specific loan styles
- Term loans from $5,000 to $500,000
- Estimated APR 12.18-36.00%
- Terms between 3 months and 10 years
- Minimum credit score of 660
- Many loans have no minimum business revenue requirement
- Large variety of term lengths
- Quick funding
- Specialty loans, including SBA loans
- Some loans require a personal guarantee and/or business lien
- Higher than average rates for some borrowers