Equipment Loan

Michelle Adams

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Depending on the industry you work in, an equipment loan may be helpful in aiding your company’s investment in the technology and equipment it needs to thrive. An equipment loan isn’t like a traditional small business loan — instead, it is a line of credit that can be accessed at any time. A line of credit is a form of revolving credit that is issued by a lender. Unlike a credit card, a line of credit allows you to withdraw cash without additional fees. Instead of paying back the initial loan amount in full with interest, a line of credit only requires you to pay interest on the money that you access. If you do not end up accessing any of the money, there will be no associated interest costs with your loan. This type of financing allows you additional flexibility in comparison to a traditional loan. Many businesses acquire them to have access to capital in times of emergency.

How Does an Equipment Loan Work?

When a lender provides you with an equipment loan, the business makes payments towards to loan over time until the debt is repaid. Depending on how the equipment loan is structured, the equipment itself can serve as the collateral to the loan. In this case, in the event of a loan default, the lender would assume ownership of the equipment. In addition, the lender might also place a blanket lien or ask for a personal guarantee. With a blanket lien, the lender can lay claim to your business assets. This type of collateral based loan might allow a business to qualify more easily than they would with any other type of traditionally structured loan. In some instances, personal assets could also be placed as collateral such as a home or car.

Is leasing equipment better than financing?

When it comes to obtaining the equipment you need for your business operations, it is helpful to consider whether or not leasing or financing makes sense. Leasing is an option if your business will only need the equipment on a short-term basis. It actually makes sense to lease if you will be replacing your equipment in a short amount of time. Once the leasing term has ended, you can elect to renew your leasing agreement or potentially purchase the equipment outright. This would be possible in the case of a lease to own agreement.

The cost differential

However, the drawback of leasing the equipment is that the cost is usually much more than if you were purchasing the equipment outright using an equipment loan. Ultimately, you may end up paying much more to lease the equipment even when taking into consideration the interest rate on the loan.

Equipment Loan

What Are Equipment Loans Used For?

This will entirely depend on the type of industry your business is involved in. Once you are issued an equipment loan line of credit its use will be entirely up to your own discretion. For example, if you if you were opening a new restaurant you may use your equipment loan to purchase kitchen supplies and related equipment. If you were opening up a medical practice you may instead choose to purchase an x-ray machine. While the possibilities are endless, the majority of our equipment loan customers use their lines of credit for the following purchases:

  • Replacing outdated equipment
  • Equipment repair
  • Investing in additional equipment
  • Researching more effective equipment
  • Modifying existing equipment
  • Purchasing modes of transport

Assess the current equipment you have in inventory — chances are there are ways that your business could be made more efficient by a relatively small investment in equipment improvement!

Keeping abreast of the latest technological developments

As technology continues to improve, your business will have need of the most updated and advanced options so that you can stay competitive. It isn’t helpful to have equipment from five years ago when you started your company if it is now obsolete. However, many small business owners who know they need to upgrade their technology aren’t able to do so because they don’t have the necessary funds in place. To remedy this situation, they look for the best equipment loan funding options that can help them meet their needs. Once they have been approved for an equipment loan, they can then access new and improved equipment and technology that can help them better serve their customer base. Purchasing new technology and equipment is one of the decisions that will have a positive impact on your overall return on investment (ROI). This is because the money that goes into purchasing new equipment will be returned back when you are able to increase productivity.

How much of the purchase will a loan cover?

When applying for an equipment loan, many applicants worry that they won’t qualify for the entire loan amount they need. One of the most common questions business owners have is whether or not the equipment loan will cover the total amount of the equipment being purchased. The good news is that in that majority of cases, equipment financing can assist you with financing up to 100% of the new and used equipment needed for your business.

Equipment Loan

What types of equipment can you purchase?

There are many different types of equipment you can purchase with an equipment loan. Some of the uses for an equipment loan include machinery, computers, hardware, software, vehicles, and office equipment. Whether you are replacing, upgrading, or purchasing brand new equipment, an equipment loan can be the perfect solution. Small business owners can avoid tapping into personal savings and cash reserves for the purchase of new equipment. Instead, they can save money by using an equipment loan which offers immediate access to much-needed funds for equipment purchases.

How to go about financing the equipment

There are many ways to potentially finance the equipment your business needs. Whether you plan on purchasing machinery, technology, computers, hardware, software, or vehicles, you can finance it with various options.

Some of the factors to consider include:

  • How long has the business been operational?
  • What are your business and personal credit scores?
  • What is your annual business revenue?
  • What are the preferred repayment rates and terms?
  • What is the desired loan amount?

An equipment loan that uses the equipment as collateral can be fully financed, however, in some cases, the lender will ask for a 20% down payment. When repaying the loan, business owners should be aware that the repayment period can be as short as 3 years or it can go up to a period of 10 years or longer. The length of the loan term is usually contingent upon how much is being borrowed. The loan limits can also go up to $500,000 with an average annual percentage rate falling between 8% and 30%.

How simple is it to get funding?

When it comes to getting an equipment loan, business owners often wonder at the complexity of the process. This is one of the barriers that many businesses face with traditional banks. Thankfully with the advent of online funding, business owners can enjoy a much more simplified and direct loan process. Equipment loans can actually be funded fairly quickly and the average time is actually between two to five business days. Since the underwriting process is virtual, it is much simpler and more efficient than ever to apply online and receive a response within minutes. Most equipment loan lenders will want a business to be in operation for at least a year prior to extending an equipment loan. For this reason, it may be more challenging for a startup to obtain an equipment loan right away.

Using a Term Loan

When seeking funding for equipment for a business, a term loan is a great option for businesses that qualify. Term loans are generally easier for a more established business to qualify for. However, they are a great option for accessing quick cash to make an equipment purchase. With a term loan, payments are made over a set time frame and the annual percentage rate can either be fixed or variable. In addition, term loans can either be secured loans or unsecured loans depending on various factors. The lender will usually consider how much is being borrowed when making the decision to require collateral or not.

It is not uncommon that lenders providing equipment funding on a term loan basis have higher credit requirements. Understanding the requirements of the term loan prior to applying can facilitate the loan process moving along much more quickly.

Using a Small Business Line of Credit

When it comes to getting the equipment a company needs, in addition to seeking out traditional equipment financing, a business owner can also consider a business line of credit. A business line of credit is ideal for businesses that are interested in obtaining fast and flexible funding for the purchase of equipment for their business. A business line of credit can be compared to a home equity line of credit or to a personal line of credit. It works similarly to a credit card where a certain amount is made available to the business. Once that amount has been used up, it must be repaid before more credit can be extended to the business.

An established business could obtain access to a large line of credit up to $1 million dollars. This would be a business with a strong credit score and a sound history of repayment. However, even a small business line of credit could be sufficient to get a business the mandatory equipment that they need to drive their operations. A business line of credit used for the purchase of equipment can be repaid over a few months. However, in some instances, there are terms that can stretch up to 3 to 5 years. It doesn’t take long to fund a business line of credit and in fact, funding can be completed in as little as a few days. An advantage for many business owners is that credit score is not a major determining factor when it comes to getting approved. However, a lower credit score may equate to a higher interest rate as well.

About Business Line of Credit Hub

Business Line of Credit Hub is the premier provider of quality loan solutions for businesses across all industries. If you are looking for the best rates and terms on an equipment loan, we can connect you with the right lenders. We operate with honesty and integrity and ensure the confidentiality of your personal information. Our simple to use online portal provides direct access to the lenders that can approve your loan. We have a wide range of different articles on every loan topic that you can readily access via our website. Read through the articles in our online database and find out more about how the different types of loans work. We look forward to learning more about your business and seeing how we can assist you with meeting both your short term and long term financial goals.

What’s the Process?

We understand that as a business owner you’re extremely busy. That’s why we’ve tried to make the application process for equipment loans as quick and painless as possible.

Traditional lenders will most likely require you to undergo a lengthy and strenuous application process that will include extensive documentation and long-standing credit histories. We prefer to analyze basic revenue data to make our lending decisions; it makes the process much quicker. Chances are if you’re looking at this page you want access to capital fast. We’ve streamlined our application process to be automated through our online portal. We can have a lending decision back to you at a fraction of the speed of our competitors.

Once you have received your line of credit you will have full access to the amount of predetermined capital we specify. And remember, you will only have to pay interest on the capital that you access — meaning there are no associated costs if you don’t use your line of credit. So, what are you waiting for? Apply for an equipment loan today and invest in your business’s future success!