Equipment Financing

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Table of Contents

    What is Equipment Financing?

    Equipment financing is a viable option for businesses that need to purchase or lease much-needed equipment, such as company vehicles, office furniture and fixtures, heavy equipment, and other equipment and machinery specific to your industry. Instead of making a one-time purchase upfront, equipment financing companies help you to spread out the payments and maintain positive cash flow.

    Medical, construction, agriculture, transportation, restaurants, hotels, and other equipment-reliant industries benefit the most from equipment financing. Qualifying for equipment financing is easier compared to other loan options because the equipment you’re going to purchase serves as collateral for the loan.

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    Loan Amounts

    $25,000 – $5,000,000

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    Rates

    5.25% – 24.99%

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    Speed

    Less than 30 days

    Two Types of Equipment Financing

    Equipment Loans

    An equipment loan is a lump sum of money that a business owner borrows from a lender. Like most other multi-year term loans, with the restriction that the money must be used for an equipment purchase. Much like a car loan or other personal loans, a proprietor uses small business equipment loans to ease the burden of large purchases by allowing them to make smaller payments over the length of the loan term.

    Like any traditional term loan, the lender and borrower will set up the terms that will be reflected in the equipment financing agreement. Lenders and borrowers will negotiate the best equipment loan rates and length of its terms to purchase the equipment you need, and the loan is paid back like any other loan (i.e, weekly or monthly payments). At the end of the period, the borrower will own the equipment.

    Equipment Leasing

    Equipment leasing works similarly to a mortgage or a traditional car lease. Your and the lender negotiate terms and set up monthly payments for the equipment that your business needs and determine a set length of time. Essentially, your small business is renting the equipment from a lending company, while making monthly payments over the terms of the lease.

    By leasing, rather than having to buy expensive equipment, your small business can have access to upgraded equipment without using up your personal assets or business cash reserves to purchase the equipment outright. Better equipment makes work easier and faster for your employees, which improves the quality and productivity of your business.

    After making all of the payments for the terms of the lease for the equipment, there are generally three options: end the terms of the lease and return the equipment, extend the terms and keep making monthly payments to use the equipment, or most equipment leasing products include the option to buy the equipment outright from the lender.

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    Benefits of Equipment Financing

    Purchase, Lease, or Repair Business Equipment
    The main benefit of small business equipment financing is that you’ll have the resources you need to purchase, lease, or repair your equipment on your business. You don’t have to wait for months to repair faulty equipment or make the necessary upgrade. With the right equipment, you can improve your bottom line and cater to more customers.

    No Need to Submit Additional Collateral
    One difference between equipment loans and traditional loans is that the equipment itself is used as the collateral to secure the loan amount. It is one benefit that small business equipment financing provides proprietors, as the emphasis for the lender is more on the value of the equipment over time than the borrower’s credit history. This also means that lenders may not require a down payment from the business. Even if down payment is necessary, the amount isn’t usually as large as other options.

    This feature makes the qualification easier for small businesses and gives SMEs the opportunity to obtain the expensive equipment needed to get the job done.

    Spread Equipment Payments

    Maintaining positive business cash flow is a constant concern for small business owners. Purchasing equipment upfront can only complicate your cash flow. Taking out an equipment loan or lease allows you to spread the cost of the equipment, so you’ll be able to allocate a fixed amount every month and budget your expenses.

    Enjoy Tax Benefits

    There is also a tax benefit for business owners that utilize equipment financing. With an equipment loan, because you make payments throughout the terms of the loan you pay interest to the lender at the equipment financing rates agreed on in the loan terms. For most equipment loan terms, the equipment finance interest rates paid on the payments can be written off as tax-deductible. However, the total principal payment cannot be written off.

    For most equipment leasing program terms, business owners can write off the entire lease payment as a business expense. That means the entire amount paid for the equipment can be written off by deducting the monthly lease payments. Another big tax benefit that applies to leasing is the government incentives written into the tax code. According to Section 179 of the IRS Tax Code, the full amount of equipment purchases can be written off if an equipment lease is set up. Even if you do not pay the entire amount for the equipment financing rates in the year you are filing taxes for, you can deduct the entire amount on your taxes for that year.

    We recommend forming a strong relationship with your tax professional and doing research when choosing the right lender for your financing needs. By working closely with lenders and tax professionals, you can take advantage of the tax benefits that equipment financing companies can offer.

    Equipment financing increases efficiency and productivity, takes advantage of tax benefits, and preserves cash. Talk to our financial professional about how equipment financing can work for your small business.

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    How Long is the Underwriting Process for Equipment Financing?

    The application process to apply for Equipment Business Loans is faster when the equipment costs are under $200,000. When the equipment finance loan is under $200,000, the complete application and closing process can be completed within 24 hours.

    “Small-ticket” commercial equipment loan decisions are heavily driven by the equipment type and the credit quality of the business owners. With strong personal credit, an established business history, and financing high residual equipment, you can expect the application process to take just 24-48 hours.
    If the loan for equipment purchase is over $200,000, there might be more financial information that could be required before closing on the deal. The process of this equipment finance loan can take anywhere from 7 to 14 days due to the more thorough underwriting process to obtain the best equipment loan amount and rates for approval.

    Equipment loans are usually readily available through banks or credit unions, and alternative online lenders. Every lender will have varying requirements for their equipment loans, so be sure to browse the potential options available for your business.

    What are the best industries for Equipment Business Loans?

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    FAQ

    How do you qualify for equipment financing?

    The determining factors in qualifying for equipment financing are based on the business credit history and time in business. Additionally, you can be prequalified for equipment financing for new business by providing bank statements and a credit report before purchasing any equipment or machinery. Business owners often utilize equipment financing because the equipment is used as collateral, which helps secure the loan for equipment purchase, especially for new business owners that might not qualify for an unsecured loan. Since it’s self-securing, lenders would be more than willing to extend a loan amount equivalent to the total value of the equipment.

    As mentioned, every lender will have varying requirements for their equipment loan products. If you’re applying from a credit union, bank, or alternative lender, the best way to know what their requirements are is to ask them directly.

    How long does the application process take for equipment financing for new business?

    The equipment financing application process time frame varies depending on the type of equipment being purchased. You will need to provide an invoice of the equipment, bank statements, balance sheets, and complete an assortment of documents.

    How would you use equipment financing?

    Equipment financing is used by businesses to purchase equipment and pay it off over a stretch of time, helping them to properly manage their cash flow. Equipment financing can be used for transportation, medical practices, transportation equipment, farm equipment financing, or other equipment purchases necessary for your small business. Talk to a lender today about equipment financing options that might be right for your company.

    Is collateral required for equipment financing?

    The equipment or machinery being purchased is required to be used as collateral for equipment financing. After the equipment is paid off during the duration of the terms of the financing plan, the business owns the equipment outright.