Growing finance

Equipment Loan Benefits and Risks

  • March 15th, 2016
  • Tyler Heaps

If you’re looking for a piece of equipment that’s going to boost your companies revenue, but you don’t have the money to buy it. Fortunately, there’s an equipment loan for that.

What Is An Equipment Loan?

Business equipment loans help business owners acquire equipment that would normally be too expensive to buy with cash. An equipment loan is a great way for companies that want to grow their revenues with a certain tool or piece of machinery. Most of the time, the immediate ROI from the equipment pays for the loan earlier than expected, making it an awesome financing option. When compared to an unsecured loan, an equipment loan is less of a risk for both borrower and bank.

Because every industry has it’s own type of equipment, the types of equipment loans are diverse. For example, some lenders specialize in financing only one type of equipment. In the construction industry, there are lenders that offer equipment loans only for heavy machinery.  In agriculture, there are equipment lenders that specifically help small farmers. For nearly every type of equipment you can think of (from commercial sewing machines to computers) there’s going to be a lender that finances that specific equipment.

A business equipment loan is very similar to an auto loan, where the purchased item itself acts as collateral. Because of this, qualifying for an equipment loan is relatively easy. Nevertheless, lenders will still carefully take into account your credit score, years in business, cash flow and other factors. In the case that you default on the loan, the bank is able to repossess the equipment – just as they would with an auto loan.

Let’s take a look at the pro’s and con’s of an equipment loan.

Benefits Of An Equipment Loans

  • Relatively Easy to Obtain Equipment loans has the collateral built right in, which makes it less of a risk for the lender or bank. This makes it easier for you to get approved.
  • Preserves Cash Flow One of the best things about equipment loans is you can often find financing with no down payment. This allows you to use your working capital for other pressing needs.
  • Adds to Net Value Equipment loans can boost your net value quickly while protecting your cash flow.
  • Increases Revenue If you’ve done your research right, and that piece of equipment is what you need to take your business to the next level, an equipment loan is a no-brainer. It’s going to increase your income without the big hit to your operating capital.

Drawbacks

  • They Can Only Be Used For Capital When you use an equipment loan, you can only use it to buy the specified equipment. That means you can’t use it for operating expense or anything else.
  • You Might Buy Equipment You Don’t Need If you don’t do your research, you might end up buying a piece of equipment that doesn’t pay for itself, which could hurt your business.

On average, equipment loan approval takes 1 to 3 months, and paying off the balance typically takes 3 to 6 years, with interest rates of 8% to 25%. Again, depending on the lender’s industry expertise, the terms and rates may vary.

There’s a lot of different options out there, make sure you compare both banks and alternative financing options.

Lendio’s mission is to fuel your American Dream by making small business loans simple through options, speed, and trust. Whether you are looking for an equipment loan or a startup loan, Lendio offers hundreds of different loan products from a variety of lenders. Find out which business loan is best for you.

About the Author

  • Tyler Heaps

Tyler is a member of the Lendio marketing team. He is passionate about digital marketing, small business, and helping small business owners succeed. Tyler is an outdoorsman and loves spending time with his family.

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