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Equipment Financing 101: How to Get an Equipment Finance Loan

Equipment financing may be the ideal solution to keep your business growing and to meet increasing demand. Click here to learn more!

In business, you make a thousand decisions every day. Should you hire more employees? Should you get new equipment? Should you offer a discount or not?

To make money, you have to have money. Whether you’re starting a business or you’ve been in business for decades, you understand that you need to have money to run a business effectively and make money. So what’s a person to do when he or she cannot afford to start or run a business?

You find help. Most small businesses do not begin without some kind of financing.

Even if you can afford to open your doors and lease a space, you still will need equipment to run your business, and equipment costs money.

If you want the best equipment to do your job most efficiently and to serve your customers well, you have an option: equipment financing. Keep reading to learn everything you need to know about financing equipment for your business.

What is an Equipment Loan?

An equipment loan is exactly what it sounds like: a loan from a lender to purchase equipment. Equipment loans are typically fixed time loans in that you have a set number of years to pay them back. Typically, business owners have one to five years to pay back an equipment loan.

Equipment loans can reach as high as $5 million dollars with interest rates as low as 7.5 per cent.

Equipment loans do have limitations, however. You cannot use the money from an equipment loan for just anything. You need to dedicate that money to the equipment itself.

So, if you want to remodel your business, you cannot use an equipment loan. However, if you need a new industrial mixer for your bakery, you can get one with this loan. Just remember, if you do not pay your note off, the lender will come after your mixer.

How Does Equipment Financing Work?

Before you open your dream business, you will quickly discover you need key pieces of equipment. If you’re opening a coffee shop, for example, your percolator at home will not do the job.

A quality espresso machine will cost $2,000 to $5,000, and a super-automatic expresso machine can cost up to $20,000. An espresso grinder will cost between $500 and $2,500, and a basic brewer will be $500 to $2,500.

That means you need $25,000 just for the equipment for your coffee shop. You know that you need high-quality equipment to make high-quality brews, so you’re willing to finance this up to $25,000.

Now you need to find a lender willing to work with you. Typically, a lender will finance a portion of what you need but not necessarily 100 per cent. Let’s say the lender approves 80 per cent of the equipment cost, so you will have to find about $5,000 of your own money to start this coffee shop.

On the positive end, if you have more than $5,000 for your start-up cash, you can use that money for your other needs like the cost of your space, marketing, and permits.

You always have the option of leasing equipment as well. With this option, you pay a monthly fee to use equipment that you do not own. Sometimes, at the end of the lease agreement, you will have the option of buying the equipment you’ve been using.

Leasing requirements are less stringent, so more people qualify for leases and go this route. However, if you finance your equipment, at the end of the payment period, you own it.

Business credit cards are another form of equipment financing as well. You can get some cards with a rate as low as zero per cent for the introductory period. You can also earn cashback, miles, or points.

Credit cards may seem appealing at the start, but they will eventually have a much higher interest rate than a typical equipment loan. They work better for short-term working capital needs and not big equipment. Use them for new computer hardware or software.

Business Equipment Financing

If your business requires business equipment, you can include this in your loan application with the term “business equipment financing.” Business equipment would include anything you need to run your business.

So your business equipment could include the espresso machine, the panini press, and the blender for the coffee shop. If you’re financing these materials, you can also include the parts that make business work efficiently such as a computer system, a router for your wifi, and point-of-sale hardware.

If you’re starting with no equipment at all, make sure to get what you need to make your business run well.

Commercial Equipment Financing

Small businesses do a lot of work that requires commercial equipment. There’s a reason people do not open that coffee shop from their kitchen. They need commercial equipment.

So if you’re opening a business, think big and heavy-duty. You will need commercial equipment that can withstand the wear and tear of everyday use. You can receive financing specifically for this commercial equipment.

Best of all, lenders understand that commercial equipment costs more than domestic equipment. A commercial oven, for example, can cost up to $10,000. A domestic oven costs just a fraction of this price.

Small Business Equipment Financing

If you have a small business, you qualify for equipment financing. In fact, this type of financing was made with small businesses in mind.

Small business is defined as such if it has from zero to 19 employees. Small businesses abound in Australia, making up 98 per cent of Australian businesses.

If you already own a business, you can get financing fairly easily, especially if you have a great business track record. You will have the records and credentials that prove you understand how to operate your business effectively.

New Business Equipment Financing

If you’re starting a business from scratch, you can still get equipment financing. You need to just have a good track record of a business person overall, even if you’ve never run the business you’re getting ready to start now.

The biggest benefit with an equipment loan comes with the collateral. The equipment is your collateral, so you do not need to provide anything as a backup for payment.

To have the best chance of qualifying for an equipment loan, you need to have a credit score of 650 or higher and a history of solid cash flow and good revenue in previous businesses.

Boost Your Business Now

New, efficient equipment can make a big difference in running your business effectively. You can finance that equipment with a simple equipment loan.

For all of your equipment financing needs, contact us.

Apply anytime, anywhere

  • No application fee
  • No obligation
  • See how much you qualify for

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