Have you heard of equipment financing? It’s a charter member of the “super explanatory name” club. Other members of the club include everyday things like toothbrushes, rocking chairs, and windshield wipers. Yes, equipment financing is exactly what it sounds like: financing that helps you get equipment.
Equipment financing has always been a popular option for small businesses. Why? Because small businesses are often in equipment-reliant industries. Also, who doesn’t love new equipment? Even if you’re not a farmer, you have to admit that it’d be a rush to buy a shiny, new John Deere 5045E tractor.
Plus, equipment isn’t limited to stuff like tractors and backhoes. Just about any tool or resource you use to conduct your business qualifies as equipment. That includes telephone systems, software suites, desks and cubicles, office appliances, and more.
Of course, all this equipment can get expensive – which is where equipment financing comes in. Here’s what you need to know:
It can be hard to get equipment financing at a bank.
The thing is, traditional sources for equipment financing are often inadequate for the modern business owner. If you needed a piece of equipment back in the day, it was a no-brainer that you’d go to a bank to seek a loan or line of credit. Or, if you were adventurous, you might talk directly to the equipment supplier about leasing options.
These options are both still available, but the customer service involved sometimes isn’t quite up to snuff. Limitations that borrowers experience with these financing routes include:
- You have to apply for the financing in person
- You’re restricted to a smaller number of financing options
- It requires a mountain of paperwork
- It’s a slow process that drags on too long for your needs
- The approval rates can be surprisingly low
- The lender isn’t motivated to earn your business
There are much easier ways to get financed, though.
The advent of online lending means that those seeking equipment financing can get faster decisions on their applications, as the entire process has been so streamlined that the borrowers of yesteryear would faint on the spot if they witnessed a modern transaction.
Also, the online approach gives you dozens upon dozens of options. For example, applying through Lendio gives you access to financing options from 75+ leading lenders – and it takes less than fifteen minutes to complete the application.
In a competitive field like this, lenders are compelled to offer the best possible rates and terms. It’s similar to what airlines and hotels are willing to do when partnering with an aggregator website like kayak.com. The prices are often super low, because those who don’t offer discounts will rarely get chosen. Why would anybody go with them, when their high prices are so easily contrasted with the better offers from their competitors?
Remember, competition is good. And the beneficiary is always you, the borrower.
Here’s how equipment financing works:
If you’re wondering how much cash you can expect to get with equipment financing, the amount ranges dramatically. You’ll often see smaller versions in the $5,000 range, which could cover most office equipment and other things of that variety. On the larger end, the amounts can reach up to $5,000,000.
The terms for this type of financing also range quite a bit, typically from one year up to five years. You can expect interest rates as low as 7.5%, though this obviously depends on your credit history and other circumstances.
One of the hallmarks of equipment financing is immediacy. Once you get the ball rolling, you can often get funds in as little as 24 hours. That’s right, you can get the money you need for that new delivery truck in the same amount of time it takes super glue to completely dry.
In many cases, the equipment you purchase will actually be the collateral for the loan. So if you default, the lender will be taking that shiny new truck off your hands. Other times, the lender requires a personal guarantee or uses a blanket lien. In both cases, the lender could lay claim to your various assets in the case of a default.
As with all loans, you have nothing to fear if you consistently make your payments. It’s just important to understand the full context of the loan and know what consequences are in place if you’re unable to meet your obligations.
Qualifying for equipment financing is easier than you might think. Typically, you’ll need to have been in business at least a year, have $50,000 or more in annual revenue, and have a credit score of 650 or higher. Because the collateral is often part of your loan, it’s not as difficult to obtain as other types of financing.
What can you use equipment financing for?
Common uses for equipment financing include office-related expenses like furniture, fixtures, and appliances. For example, if you think solar panels would be a great addition for your office, equipment financing could be your ticket to getting them. It’s also commonly used for technology upgrades like bookkeeping software or payment processing solutions.
In the realm of beefier equipment, this type of financing is used for things like forklifts, conveyor belts, compressors, and hydraulic lifts. Step into a restaurant kitchen and financing may have been the vehicle for purchasing the ovens, fryers, and freezers.
Finally, speaking of vehicles, many small businesses use equipment financing to add to their fleet. Whether it’s a florist’s delivery van or your favorite food truck, those wheeled contraptions cost money. And when equipment costs money, the vast majority of small business owners turn to their old friend: equipment financing.