Equipment Financing
Upgrading or buying new equipment can accelerate the growth of your business. When done correctly, new equipment essentially pays for itself by increasing sales and revenue. The problem is coming up with the money to buy it in time. Saving up to purchase new equipment outright takes time and might mean losing out on excellent business opportunities. Here is where equipment financing companies come in.
What is Equipment Financing?
Equipment financing allows you to obtain new equipment for your business now but spread the cost over an extended period to make the payments more affordable and manageable. By staggering the installments over a few months or years, you can leave your business with the money it needs to maintain healthy cash flow.
How Does Business Equipment Financing Work?
First, you’ll need to apply with an equipment financing company. Keep in mind that you can only apply for equipment financing to purchase business-related equipment. You can usually apply quickly enough online.
When applying for business equipment finance, you will typically need to provide:
- ID & business licenses
- Business credit score
- Business tax returns (usually from the past three years). Be aware that you will need to explain any dips in income.
- Business bank account statements (usually from past three months)
- Documentation of the equipment you want to purchase along with a quote
The amount you qualify for will typically be close to 100% of your purchasing equipment value. The loan term should be how long you plan to use the new equipment. If you borrow for longer, you’ll be paying for equipment that you no longer use.
When comparing different companies, keep in mind that there are two types of equipment financing:
- Equipment loans –The small business financing company lends you money to purchase equipment
- Equipment leasing – The financing company rents you the equipment for a flat fee. You do not own the equipment.
Equipment Loans
An equipment loan is when a small business or a commercial business borrows money to purchase equipment. The equipment is then secured as the collateral for the loan. Your lender will decide how much you can borrow, depending on the equipment you’re buying. They will consider:
- Whether it’s new or used
- How much the equipment will be valued at by the end of the loan term
- What industry your business operates in
What Do I Need For Business Equipment Loans?
Different lenders have different requirements, but here are some of the most common conditions for business equipment loans:
Fair or Good Credit Score
The higher your credit score, the more likely you are to be approved.
A Business Plan
Lenders will want to see a summary of your business and a proposal for future growth, including how the equipment will play a part in this growth.
In Business For 6 – 24 Months, at Least
The less time you’ve been in business, the more risk you will present. For example, if you’re a startup, expect a higher down payment requirement and higher interest rates.
$25,000 – $250,000 in Annual Revenue Depending on the Equipment
This will generally need to be accompanied by a cash flow statement detailing all the business’s income and expenditure.
Down Payment
5% to 20% for companies with good credit, but up to 50% if your credit is bad.
UCC Filing
Only some equipment finance lenders will require a UCC filing. UCC filings give lenders access to assets (to be used as collateral) or a blanket lien if the loan defaults.
Equipment Leasing
Equipment leasing works differently to equipment loans. When you finish repaying an equipment loan, you fully own the piece of equipment. When leasing, however, the lender owns the equipment and rents it to your business for a flat monthly fee.
If you think there is a risk that the equipment might become obsolete during the loan term, you should consider equipment leasing instead of an equipment loan. This may be a better option if new models, regulations, or technologies are regularly introduced to the market, and you need to upgrade your equipment accordingly.
Leasing allows you to use the equipment for as long as it’s useful to you, and then upgrade to newer models as they become available. Another advantage of leasing is that it usually covers the soft costs of shipping and installing the equipment.
With some leases, the lender will allow you to purchase the equipment at the end of a predetermined amount of time. Some lenders will allow you to buy the equipment for Fair Market Value (FMV), while others will specify a specific amount – sometimes as low as $1.
So, Which Type of Equipment Financing Should I Choose?
Rates and terms vary from lender to lender, so make sure to compare all available options before signing any contracts. Typically, leasing has cheaper monthly payments than a loan. Still, it can wind up being more expensive in the long run, as leasing generally comes with higher interest rates.
| Choose an equipment loan if you: | Choose equipment leasing if you: |
|---|---|
| Need the equipment for more than three years | Need to change out your equipment regularly |
| Want to own the equipment | Can only afford smaller monthly payments |
| Know the equipment will retain its usefulness and value over time | Can’t afford the required down-payment on an equipment loan |
| Have money for a down-payment and can afford the monthly payments |
Equipment Financing Rates
Equipment financing is a form of self-secured finance, which means the funding is automatically secured against the equipment being purchased, making it one of the cheapest types of business financing available.
Rates for equipment financing are usually fixed, meaning that you pay the same amount over the entire borrowing term. The interest rate will vary depending on how much you are borrowing, which equipment you’re using as collateral, and the loan terms, but you can expect:
- 6% – 9% for well-qualified businesses
- Up to 30% for businesses which pose bigger risks
Equipment financing durations are generally between 2 and 7 years, but specific types of equipment may qualify for up to 10 years of financing.
It’s also important to mention that if you default on the terms of the agreement, the lender may be able to repossess the equipment. Always make sure to read your contract carefully, so you know the consequences of delinquency!
Equipment Financing FAQs
Yes, you can still get equipment loans for bad credit. Since your loan is secured against the equipment you’re purchasing, lenders feel more secure lending to you despite your credit history. As long as you’re planning on buying equipment that will retain its value, equipment lenders might still work with you. If you have very bad credit, you can also offer a larger down payment on the loan to increase your eligibility.
Yes, you can apply for used equipment financing with most online lenders that offer equipment financing. As long as the equipment is in good condition and still has longevity, most lenders will accept your application.
Yes. Heavy equipment financing is available from a select number of lenders. If your business relies on heavy equipment or machinery, renewing it or maintaining it can be a considerable cost. However, this cost is sometimes necessary to boost productivity or ensure workers’ safety. Like conventional equipment financing, heavy equipment financing allows businesses to borrow large sums to purchase equipment or equipment parts and repay in installments instead of upfront.
Before financing heavy equipment, make sure to account for other costs that you’ll need to cover, such as insurance, maintenance, a new workforce to operate it and storage, etc.
Banks often have the best rates when it comes to financing heavy equipment; however, you will need a good credit score and higher revenues to qualify. Moreover, the process is lengthy and can take several months to finalize. If you have good credit and income and can afford the wait, consider approaching a bank for heavy equipment financing instead of an online lender.
Who is mCashAdvance™?
MCashAdvance™ is a merchant cash advance provider based in New York. We provide fast cash injections to help American businesses thrive. If you process your sales through card transactions, you can get approved for financing with us instead of using an equipment loan or lease.
- Unsecured – You will not need to use the equipment you purchase as collateral for the finance
- No downpayment – We never ask you to lay down money in advance
- Less paperwork – We don’t require any information about the equipment you’re looking to purchase, we only care about how your business is performing
Our MCA funding is not the most affordable, but it always comes with complete transparency and honesty. You can apply now with mCashAdvance™ and get an instant pre-qualification decision. If approved, we can get up to $500,000 advanced to you within 24 hours!
Does Your Business Need Funding Today?
There’s no fee or obligation, and it won’t impact your credit.
$5,000 – $1,000,000
Talk to a rep at (855) 433-8641
Mon – Fri | 9:00am – 8:00pm